This essay will examine the various taxation schemes governments have devised to fund their parasitic existence, and to fund their operations, both desirable and undesirable. In addition we will examine who pays for this largess, and show that with little exception all taxes are paid by the consumer.
To begin with it is desirable to categorize taxes into two groups, direct and visible taxes, and indirect and invisible taxes. The first group includes, among others, point of sale taxes, title taxes, excise taxes, real estate taxes, property taxes in general, and of course income and payroll taxes. The second group includes inflating the currency, tariffs, sales taxes that are embedded in the price, and oddly also all of the direct taxes, including income taxes. This latter point is little appreciated and the major impetus for this essay.
The fact that virtually all of group one taxes directly affect the price of goods and services purchased in the market leaves little doubt that these taxes are paid by the consumer. They either reduce the amount of money that the consumer has to spend in the market place, or they increase the price of the goods and services the consumer buys. The direct taxes are plainly visible and can be understood by every consumer that is affected.
On the other hand the indirect and invisible taxes require considerably more time and thinking to appreciate how much is paid and by whom. These taxes deserve a more thorough discussion.
Inflation of the money supply is only possible in the case of fiat currencies. Unfortunately virtually all of the major currencies in the world are now fiat currencies and can be increased at will by the controlling governments. In the case of the U. S. and the dollar, this is accomplished by the Federal Reserve, which is supposed to be independent of the government but is in fact a creation of the Federal Government and therefore ultimately under its control. Thus creation of more money by the U. S. government is not only possible but has been used more and more to cover deficits between income and spending. This is a tax on everyone that uses dollars in that the extra money created and spent by the government drives up dollar prices for everyone else.
President Trump has reintroduced tariffs, i.e. taxes on imported goods, both for income for the government and as a economic weapon against foreign countries. Tariffs can increase prices of imported goods to compensate for the increased prices of domestically produced goods due to various taxes paid by domestic producers, but in that case tariffs are paid by the U. S. consumer. However, if the foreign importer has enjoyed a windfall profit by pricing his goods the same as the domestic producer, he can eat some or all of the tariff. Unfortunately the American consumer still pays the same elevated price, but in a real sense the importer is paying the tariff.
In the U. S. most sales taxes are only applied on final retail sales, so the embedded sales tax is mostly irrelevant here. However, ALL the direct taxes – real estate taxes, retail sales taxes on capital expenditures, income and payroll taxes, etc. – that are paid by every U. S. entity involved in getting the goods and services to the consumer are also embedded in the price and are therefore paid by the consumer both in and out of the country.
This last point is the main takeaway from this essay. Every American that contributes to making goods and services available to the market has to include all the taxes he pays in his price for his contribution to net a desired or necessary profit to support his existence. Thus the fundamental fact is that the consumer pays virtually all the taxes, not the worker making the product, not the corporation he works for, not the rich ;individual who owns the corporation that the socialist claims will pay, not even the trucker who delivers and the retailer who sells the product. All of these pay taxes only to the extent that each of these consumes the goods in the marketplace. The consumer pays either by sales, excise, tariffs, etc. taxes embedded in the prices of the goods and services he buys, or by losing buying power with the income, real estate, personal property, etc. direct taxes he pays. Even the parasitic welfarite that lives off of government largess has his or her consumption reduced by the price increases representing the taxes added.
The principle presented in the last paragraph is why the Income Tax is such a bad idea, and why replacing it with a National Sales Tax is greatly preferred. Even if such a tax would be at a rate to replace the Income Tax revenue to the government, the consumer would not be paying more that he does now since he pays it all anyway. In fact, by eliminating the gargantuan IRS empire and the indirect costs to business of complying with the insanity of the Income Tax code, one would expect that effectively the consumer would pay less. It is almost impossible to put a number on the indirect costs referred to here, especially since currently every business decision is made worrying about the tax considerations. No wonder Marx listed a graduated income tax as a major tool in destroying a country.
One last consideration as to why the Income Tax is a terrible idea. The contribution of the Income Tax to the price of all goods manufactured in this country makes a major contribution to why American exports are non-competitive in world markets. This burden cannot be offset with tariffs or the like, and the elimination of such would go much further than tariffs to make the U. S. a dominant economic player in the world markets.
Years ago Milton Friedman stated the principle that the total taxes that a government takes in must equal the total expenditures. The U. S. government does not really operate with a 'deficit'; it just collects that part of its income from the indirect and invisible taxes. This author would add the principle discussed above that all taxes are ultimately paid by the consumer. These two principles should allow taxes to be understood in spite of all the noise surrounding the subject.
