Taxing Business Taxes Us

May 17, 2005 0

Steve BucksteinQuickPoint!

Critics are complaining that corporations pay less than their fare share of taxes in Oregon. They note that business sector taxes accounted for 14 percent of state revenue in 1980, but will only be 4 percent by the end of this decade due to tax law changes.

What the critics fail to understand is that businesses only collect taxes; it is individuals who actually pay them. Sometimes customers pay in the form of higher prices, or shareholders earn lower dividends. Other times suppliers see fewer orders, or owners and employees receive less take-home pay.

Because these taxes are hidden, it is virtually impossible to know exactly who ends up paying them. Therefore, advocates for higher business taxes may actually be hurting the very people they meant to protect when they decided not to tax those individuals directly.

Politicians can also avoid some blame if they tax businesses rather than individuals. When a business raises its prices or lowers its salaries because of a tax burden, customers and employees will likely blame the business rather than the politicians. Because many people don’t understand how business taxes affect them, corporate taxation may be seen as smart politics.

In this case, smart politics is bad tax policy. Taxes should be explicit, not hidden. We should therefore stop taxing businesses and decide which individuals we want to tax instead. It may be harder on the politicians, but it will be a more honest tax policy.

Steve Buckstein is senior policy analyst at Cascade Policy Institute, a Portland, Oregon based think tank.

© 2006, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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