When Joe Biden was running for president, he promised not to raise taxes on anyone making less than $400,000 per year. Which would be just about everybody, right? So, the revenue raised from a tax increase on the over $400k crowd just isn’t going to pay for all the stuff the Biden-Harris administration wants to do.
Well, what’s a president to do? Why not raise taxes on businesses? After all, corporations aren’t people and they don’t vote, at least not directly. And that is what the Biden-Harris team is proposing -- raising the corporate income tax.
Taxing companies seems like a harmless idea. After all, companies make a lot of money and they can afford a tax increase better than you or I can.
Well, let’s boil this down to a simple example to see how it shakes out.
Assume Joe Bob is a farmer in south Arkansas, and he grows watermelons each year. He runs a low overhead operation, setting up his inventory on the truck bed and selling by the side of the road, $5 each, red meat or yellow. One day an IRS agent stops by to purchase a melon. He casually remarks that Joe Bob must pay an income tax on the melons he sells. Joe Bob casually remarks that he’s never heard of income tax or the IRS. The agent becomes agitated and immediately levies a $1 per melon tax, red meat or yellow.
Well, Joe Bob is accustomed to getting $5 a melon and, after mustering all the math skills he’s got, determines that he now needs to charge $6 per melon, red meat, or yellow. So new customers from that point on now pay $6 a melon.
Back to the Biden-Harris narrative. If Joe Biden raises taxes on corporations, who really pays? Is it the corporation or is it you and me paying in the form of higher prices?
Of course, the economist out there may argue that the corporation will not be able to pass the full tax increase on to the consumer. Perhaps competition will prevent it. Suppose Joe Bob has a competitor down the street, Bill Tom (this is one of those towns were everybody has two names!). If Bill Tom gets hit by the $1 tax, he may be willing to pay half the tax himself and raise prices from $5 to only $5.50. At that point, Joe Bob may have to drop his price to meet competition, or risk losing sales. But at the end of the day, you and I are paying more for melons from either source. But at least Joe Biden didn’t raise taxes on us. Not yet anyway!
Dr. David Ashby is a Certified Financial Planner and the retired Peoples Bank Professor of Finance at Southern Arkansas University. He holds degrees in accounting and business administration and a doctorate in finance from Louisiana Tech.