Hey Washington! Corporations Don’t Pay Income Taxes, Their Customers Do.

The political class is again seeking to support proposed spending with new and increased taxes.  An apparent favorite for increases is the corporate tax rate.  It is important to understand that, while corporations may send money to Washington, those funds are collected from individuals as part of the selling price.  The only sources of revenues for corporations is the sale of goods and services to customers.  How those funds are disbursed varies, but most of company’s revenues are spent on raw materials, wages and other expenses inherent to the successful operation of any enterprise.  Everything that is spent comes from sales to customers, and it makes no difference where the money goes, labor, raw materials, or taxes, for example, it can only come from customers.

Investors should remember that company management is focused on providing value while maintaining, or improving profit margins.  Any corporate expenditure can only come from customer purchases, and every item of expense adds to the selling price. Price increases are inflationary, and like any consumption tax, are regressive.

All comments and suggestions are welcome.

Walter J. Kirchberger CFA