Are Individuals Paying More Taxes Than Corporations?
Often, individuals mistakenly believe that corporations pay a larger share of taxes than they do in reality. In this article, we'll delve into the often misunderstood nature of taxation as it applies to both individuals and corporations, and why individuals end up paying more taxes than corporations in many scenarios.
The Myth of Corporate Tax Burden
Corporations do pay taxes, but the tax burden is often shifted back to individuals. Here's a bit of background. When a corporation collects money from its customers, it is essentially collecting money that was initially earned by the employees, possibly in the form of income from their work. Taxes are often imposed on the corporation's profits, which ultimately affects the employees' take-home pay and other benefits.
Understanding Social Security Tax: A Primary Example
The most glaring example of this tax burden shift is the Social Security tax. This tax directly impacts your paycheck, ostensibly with the employer and employee each paying 6.2%. However, this is a fiction. When an employer hires an employee and offers a certain salary, they are not considering the Social Security tax in isolation. The employer includes this cost as part of the overall expense of having the employee. For every dollar they pay you, they are also paying the government's share. This is baked into the employee's salary and other benefits.
The True Cost of Employment
Let's consider a manufacturing scenario where a company estimates that an employee will generate $50,000 in revenue for the company. The company will not hire the employee for a $50,000 salary because it must account for the costs of providing the employee with a workspace, tools, retirement plans, and taxes, including Social Security and unemployment insurance. All of these costs reduce the net salary and other benefits that the employee receives.
Comparing Individual and Corporate Profits
Let's explore another real-world example. My friend owned a Chrysler dealership in a small town in the late 1970s. Even though Chrysler was reporting losses, my friend’s dealership was making more profits. This is not an uncommon trend; in many cases, the small business owner pays more in taxes than the corporate entity itself.
Corporate Tax Strategies and Benefits
Corporations can benefit from various tax strategies, such as carrying forward net operating losses to offset current year profits. Additionally, companies like Amazon can benefit from tax credits for investments in green energy and other preferred ventures. When you see a corporation reporting significant profits, it's often because they have offset these profits with previous losses and benefited from various tax credits.
Changing the System
If you're dissatisfied with how taxes are structured and where the burden lies, the solution may be to elect different representatives in Congress. These representatives can help advocate for tax reforms that better reflect the true nature of the tax burden and lead to fairer taxation practices.
Understanding the tax implications as an individual can help you make informed decisions about your finances and advocate for changes that could lead to a more equitable tax system. By recognizing and addressing these issues, we can work towards a better understanding of how taxes affect everyone involved.