Wikipedia defines a corporation as an organization, authorized by the state, to act as a single entity. Corporations don’t pay taxes, we do. Corporations are, in effect conduits. They collect taxes from others, primarily employees and customers and then remit the money to the government.
Taxes collected from employees through payroll deductions include, income, social security and Medicare. Taxes collected from customers at the point of sale, can include, excise, sales and value added taxes. Corporations do pay some taxes out of internally generated revenues, including property and income taxes. However, those taxes are eventually paid by customers as they are included in the corporation’s total “cost of sales” and are recovered through the selling price of the company’s goods and services.
Investors should consider the potential impact on economic growth related to turning businesses into a tax collector. Payroll taxes have an adverse effect on employee take-home-pay. Consumption taxes also reduce purchasing power. To the extent that a consumer’s purchasing power is reduced, there is less money in the family budget for products or services, the drivers of economic growth.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA