Now let's get something straight...

"...increase taxes on big business who are not paying their fair share of the tax burden..."
-President Obama

"Big business"
Ooh.
Sounds evil.
Sounds oppressive.
Sounds like it needs to be taken down a peg or two.
More taxes on "big business" must be a good thing, right?
Better those "big businesses" than us little people, right?

But really, if you think about it, what is "big business"?
What is *any* business?

Simply, it's a group of people who have pooled their resources & varying complementary abilities to provide a product or a service in return for cash (or another product or service).

What are some things that a business does?

It employs people who have the ability to help provide the product or the service.

It provides a product or a service to people who want it or benefit from it & are willing to pay for it.

It probably markets its product or service in a number of ways so as to make people who might want to buy the productor service (or benefit from it) aware of it.

It sometimes invents new products or processes that help the common good.
Some examples are medicine, electronic gadgets, tools & other gizmos that make our lives easier & more convenient.
In a word: Innovation.


If it does a good job of providing the product or service at a reasonable price that people are willing to pay to make use of the product or service or benefit from it,the business will do well, hire more people, make even more products & services & grow... into a "big business".

If it does a lousy job of providing the product or service, or if it charges too much for it, people won't buy it & the business... goes out of business.

This is an economic system called capitalism.That doesn't sound too bad...

A business is really just a bunch of... *people*.


*People* who make cool things like TV's & ipods & computers & refrigerators & sofas & furniture & homes & sinks & food & music & clothing & carpets & cars & medicine & other stuff we like to use. Things that make our life better, easier, longer.

*People* who provide services like maintaining our pipes or electricity, or lawn, or car, or whatever else those people might be skilled in that we might either not be skilled in or don't have the time for & are willing to pay someone else to do.

One would almost think that we ought to be rewarding businesses that do well. Actually, in a capitalist society, we already do... by buying the products & services with our hard-earned money. We're *free*to do so. And if the business makes poor decisions, we're just as *free* to take our cash elsewhere.

Ah, freedom...
But one would also wonder why we would want to punish"big business". What purpose would that serve? What might come of it? Surely "big business" can afford it?


So what happens when we increase taxes on "big business"? The business has some choices to make:

1. It can increase the prices of its products & services tomake up for the loss. Hmmm... so who exactly is paying the tax increase?
2. It can freeze or cut salaries, or even lay off some employees to cut costs. Hmmm... so who exactly is paying the tax increase?
3. It can scrimp on the quality of the product to cut costs. This way the consumer gets an inferior product (or less of it) at the same price. Hmmm... so who exactly is paying the tax increase? Of course, the consumer is free to go elsewhere for the product... like to a foreign company whose tax burden isn't as high... D'OH!!
4. It can cut back on its operating expenses in a number of ways. Perhaps the products & services that it used to buy from other businesses (remember a business is just a group of *people*) or individuals are curtailed, which will affect the people involved in those businesses, who may have to cutback by laying off employees or lowering salaries or increasing prices or...Hmmm... so who exactly is paying the tax increase?
5. It can cut back on research & development (R&D) expenses in order to keep current operating costs down. So its product doesn't change or develop or get better. Innovation is stiffled. New medicines & electronic gizmos go undeveloped. Hmmm... so who exactly is paying the tax increase?
6. It can simply eat the cost & make less money in order to give the tax to the govt. If it's a "big" business, it is probably owned by shareholders. Since those shareholders will get less profits, their income will decrease. Also,the value of their stock in the "big business" will probably also decrease as a result. And who are shareholders? Usually, they are... you guessed it... *People* who have pensions, 401K's, IRA's, investments, save their money for retirement or invest it for income... you know, little *people*, like you & me. Hmmm... so who exactly is paying the tax increase?
7. If the cost of doing business simply becomes too high,to the point where making a profit is an unteneble prospect,the business can... go out of business. That will certainly solve the "problem" or "inequity" of "big business". But... *people* will lose their jobs, & people who liked & used the products & services won't get them anymore, & other businesses (who are made up of *people*) who relied on that business...Hmmm... so who exactly is paying the tax increase?
   

You can guess what happens when tax rates are lowered. Businesses flourish, grow, hire people (who pay income taxes), make products & services which other people use & pay for (& pay a sales tax on), more profits are made (which also generate tax revenue), prices come down so people can afford more, so they spend more (more sales taxes), which allow business to grow to meet the growing demand for their products & services, so they hire more people (who pay income taxes), etc. as the positive merry-go-round of the economy gets moving.

In a nutshell, more money changes hands more often, so that even though the govt gets a smaller piece of each transaction, there is more economic activity & more transactions from which to extract that little piece of tax. Rates go down, but revenues don't change, or even go up.

History bears this out.

This is what Ronald Reagan did in 1981.Tax revenue soared after he lowered tax rates.A similar thing happened under JFK when he cut tax rates.

Now consider:
When the tax burden becomes too high, "big business"(people who hire people & work together to provide products & services to other people & a profit to people who invest in these people) is stiffled. Innovation is stiffled. Convenience is stiffled. Little people like you & me end up paying more in a variety of ways, & getting less for it.

In a nutshell:

Reagan/conservative tax policy: "Trickle down prosperity"

Obama/liberal tax policy: "Trickle up poverty"

Perhaps the next time the govt decides that a "big business"is making too much profit (which sure sounds like an evil state of affairs) & the profit needs to be confiscated under the guise of "fairness", consider what that entails.

Ultimately, they're taxing... *YOU*.

This was posted by a friend on Facebook. The one contribution I will add to this is that the average profit of a big business is 8 cents on the dollar. That's it. Most of us made a bigger profit selling lemonade as kids. Considering all of the expenses, risks and liabilities that companies are expected to bear, I wonder at what point does business no longer make sense. When would you shut your doors? 6 Cents worth of profit? 4 Cents? 1 Cent?