Wednesday, April 16, 2008

How do taxes affect us?

I was commenting on a blog entry about a property tax repeal that the Arizona Legislature just made permanent but which the governor is likely (in my opinion) to veto and it got me thinking about how much we really pay in taxes. After all, almost every product we buy is from a taxed business that employs taxed laborers. So guess who is paying those taxes? That's right, it's us!

A lot of people mistakenly think a tax hike that doesn't affect them directly is ok. In fact, many get a sense of satisfaction if they see the government sticking it to "big oil" or "big business" but who is really paying that tax? That's right, we are. Businesses that have to pay higher taxes will do one of two things (usually):

1) Raise prices to cover the cost. This means that the tax that was affecting businesses is being paid by you and me when we make our purchases.

2) Move their business to a less expensive environment ( different city, different state, or even a different country). This means loss of jobs, loss of income, and possibly higher taxes to make up for the new shortfall.

I think it's naive to assume that taxing "big business" doesn't affect us as consumers. For example, if you purchase a brand new car, here's a list of some of the taxes you are paying (assuming the car was made in the US):

1) State, county, and city sales tax on the car (the obvious tax).
2) Property tax for the dealership.
3) Federal and State income tax for the business running the dealership.
4) Federal and State income tax for the employees of the dealership.
5) Sales taxes/tariffs (possibly) for some or all of the parts in the car.
6) Property tax for the factory that made the car.
7) Federal and State income tax for the business that made the car (GM, Ford, Chrysler, etc).
8) Federal and State income tax for the factory workers that built the car.
9) Federal and State income tax for the rest of the workers in the company (management, research and development, testing, administration etc).

Well that's everything I can think of off the top of my head. I'm sure if tax experts looked at it, they could come up with quite a few more taxes that go into a car. However, this isn't just about cars, every other item you buy is going to have a similar list of tax expenses.

The point is that every single tax change affects you and me to some degree. To assume a tax that mostly affects businesses doesn't affect tax payers is extremely short sighted. Taxes affect everybody, either directly or indirectly.

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