Hidden Taxes

Taxes are always a controversial topic with widely divergent opinions as to who should pay, how much, and on what basis.  An old saying “Don’t tax you, don’t tax me, tax the fellow behind the tree,” may be more appropriate than ever, as politicians increasingly seek to obscure the full amount they are collecting and spending.  For example:

  • This November, Oregon voters will vote on the imposition of a 2.5% tax on corporate gross receipts.
  • The EU is proposing to levy a $15 billion tax against Apple, to be paid to Ireland, based on the contention that Irish corporate tax rates are inequitable under EU regulations.
  • A significant component of aggregate tax receipts, particularly in Europe, is derived through value added taxes (VAT) that are largely invisible to consumers, but are part of every applicable purchase.
  • Germany’s Wolfgang Schaeuble is seeking to resurrect a plan to tax global financial transactions.

The common denominator in all of these tax strategies, and many others too numerous to discuss, is that the real tax payer is hidden from the public.

Entities, corporations and other institutions do not pay taxes.  They may write the checks, but the money comes from their customers, you and me.  Taxes are no different than any other cost of doing business.  A producer of products or services calculates all costs and then seeks to sell said products or services at an amount that exceeds its aggregate costs.

Taxes that are levied against an entity are included in the selling price.  While consumers may be generally aware that the purchase price include VAT and other taxes, the amount is generally not set out at the time of purchase.  Thus the customer does not consider the taxation factor, but rather, focuses on the cost versus value calculation.

Of course, there are plenty of taxes that are not hidden, such as income taxes, sales taxes, licensing fees and property taxes, to name a few.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®