Businesses are collectors and remitters of taxes, but they don’t really pay taxes. For businesses, taxes are expenses which are covered by the prices that you and I pay for products and services produced by them. Individuals pay all taxes because we can’t pass on the expense to someone else as every business can, and does. There is a potential problem — if taxes, among other costs, are too high, a business may not be able sell its wares competitively and may not survive. Tax costs are an easy scapegoat because no individual is obviously to blame.
To get to the core of the issue, why do we have to pay taxes at all? The two primary reasons are (1) to pay for government services and (2) to influence population behaviors. Many tax laws are designed to make us pay more for activities that the government wants to discourage in order to subsidize those things that the government wants to encourage. The paradox can be illustrated this way: Why do we tax income and wealth while we subsidize growing tobacco and welfare for illegitimate children?
How much of your income (and that of all the rest of us) should we have to give to “government” in the form of taxes — 2%, 5%, 10%? I am willing to give to “government” up to 20% to pay for services relating to regulation (to assure equal opportunity) and defense (to assure our security and safety from threatening forces). Lots of goods and services are necessary to support these objectives. This would require giving to “government” about $1.5 trillion (12 zeros) per year. Does this sound like a lot? With a US population of 265 million that’s an average of a little more than $5,000 per person. Does this still sound like a lot?
Let’s consider what we are paying already. Even if you are not wealthy, you pay about 40% of your gross earnings in taxes to all forms of government in various ways. “How (?)”, you say. “I got a refund after I filed my income tax return last year.” Here are the major components:
(1) Federal and state income tax – 15% or more of gross income
(2) Payroll taxes – 16.6% or more of gross income
(3) Sales tax – (in Chicago) 8.75% of the cost of most purchased goods
(4) Property taxes – directly or as part of rent expense — ???
(5) Business taxes (excluding payroll taxes) included in the price of the goods we buy – about 5% of the cost of goods and services
(6) Other licenses, fees and fines assessed for various purposes — ????? more
If you are paying much less than 40% of your gross income in taxes, you are unusual. You must have adjusted your behaviors (reason #2 above) to take advantage of tax deductions and credits (or just tax avoidance) offered by the tax statutes.