Barack's Free Lunch

There is an ironic twist to Senator Obama's attempts to appeal to voters via his tax proposals. He has repeatedly stated that he is going to write checks to those that pay no taxes now and lower the taxes paid by those making 250k or less. He is going to "spread the wealth around", as he so eloquently puts it, by taxing corporations and individuals that make over 250k/year. Unfortunately Barack seems to have overlooked the fact that corporations pay zero, nada, bupkiss, zilch in taxes.

It's understood by most amateur economists that Corporations don't pay taxes. How did Senator Obama miss it? For a corporation a tax is just an expense. It doesn't matter to a corporation if an expense is for raw-materials, rent, office supplies, wages or taxes. All expenses get passed along to be paid by the customers of the corporation. Who are these customers that Barack thinks are not paying their fair share of taxes? Just everyone that has any intention of buying anything produced by the 'too wealthy' American corporations. In other words, -you-.

Corporations that don't want to raise the price of their products have two options for compensating for the extra expense of higher taxes; reduce other expenses or accept lower profits. Share holders typically make it impractical for a company to make significant adjustments in profit expectations. Corporations base their income targets on percentages, not absolute dollars. We experienced the realities of this in the recent increase in gasoline prices. If an oil corporation has a 10% profit target and a barrel of oil costs $50, the company has to make $55 on that barrel of oil as part of the final product. If the price of that barrel of oil goes to $100, the company has to make $110. The cost doubles and so does the profit. Thus record costs translate to record profits even though the company is still just making 10% profit. If the oil company had kept their absolute profit at $5 per barrel regardless of the cost, they would have seen their profits plummet from 10% to 5% and they would have been murdered on Wall Street. Since corporations are in business to make profits, cutting profits is naturally going to be the last choice.

If a corporation doesn't raise prices or accept lower profits to cover the increased taxes the only remaining option is to reduce other expenses. Generally speaking, companies already work to reduce costs that don't contribute to profit. The company could reduce wages or try to make-do with fewer employees. Since Obama is going into the business of subsidizing workers the wage reduction approach may have some merit. However you look at it, the corporations are not going to be funneling free money into the government coffers under Obama's tax plan. However you look at it, without expanding the tax to foreign corporations, Barack's tax plan will make US corporations less competitive in world markets.

If Obama's tax plan makes corporations less competitive and the benefits to lower and middle income citizens are offset by higher prices, who does the plan really benefit? Corporations will pay the entire tax to the government. The Government will take it's cut and pass the rest along to the voters who will in turn pay it back to the corporations through higher prices. The only person getting anything tangible for this money is Barack Obama, who gets to keep the votes he's buying with with corporate money.