Businesses don't pay taxes; consumers do

Business tax cuts and corporate-recruiting incentives will be prominent policy issues for the Legislature this year.

For one, the mainstream media's reporters will make them so; they hate both with a passion.

Lawmakers are also targeting these topics. Democrat legislators already are positioning themselves as potential obstructionists to Gov. Rick Scott's priority to eliminate Florida's sales tax on machinery and equipment. It's valued as a $140 million tax cut.

And now that Republicans no longer have a supermajority in the House, Scott will need Democrats' votes to eliminate the sales tax.

Predictably, the Democrats see an opportunity to make Scott beg and grovel. The governor is heading into the next election cycle, and you can bet Democrats are going to do whatever they can to derail Scott's record.

Scott's pitch is the elimination of this tax will help make Florida more attractive to manufacturers. And, duh, if Florida can attract more manufacturers, there will be more jobs.

Some Democrats and the profit-hating media see this tax cut primarily as a sop to a special interest. Indeed, whenever you say “tax cut” in Washington or Tallahassee, there is always a loud chorus whining how cutting taxes and tax rates will “cost” government.

As they see it, the state apparatus is the loser. Tax cuts mean lost revenue must be made up by taxing someone else.

What they don't see is the concept from the other side. That lowering taxes is a winner for the economy, the state and the taxpayer, whether that taxpayer is a corporation or individual. As Steve Forbes often tells his audiences, taxes are a cost, just as paper and laptops are.
The anti-tax cutters also are not convinced that lower tax rates or the elimination of a tax will lead to greater tax collections that replace and surpass what was given up.

It's a mystery why the following is so difficult to envision: Eliminate the machinery sales tax, and the taxpayer — be it company or individual — will be able to keep more of his money (key word: “his,” not the state's). And he, not Tallahassee, will be able to decide how best to put his capital to uses that benefit him and others (known as free trade). That trade, in turn, fuels more trade, more economic activity. And it leaves out the government middle man, the bureaucracy that takes its slice of the tax and then redistributes what's left.

While it makes sense to say those government workers keep the economy going when they spend their wages, they're not creating wealth. They're toll takers and redistributes.

Manufacturers, on the other hand, are wealth creators, especially if they are selling and shipping their products across state lines. In those instances, every time a Florida manufacturer makes a sale, say, in Georgia or Alabama, the buyer is sending new money into Florida. It's adding to the business's and the state's wealth.

Lawmakers often also seem to forget, in the case of business taxes, that businesses don't pay taxes. They pass the cost of all taxation onto their customers in the prices of the goods and services they sell.

That's the concept that should be reiterated in Tallahassee this spring when the Legislature is in session.

Or paint a picture, like the one in the accompanying box. Compare two states — one with a sales tax on machinery and one without. Then do the math and the analysis. The results should be obvious.

This is really an old story. But unfortunately it must be told like Aesop's Fables — again and again. But unlike a fable, this story is real and has been shown and proven many times. Dr. Arthur Laffer and Stephen Moore — the former a Milton Friedman protege, the latter a longtime economist and economics journalist — have shown many times in their book, “Rich States, Poor States,” what should be intuitive:

States with falling tax burdens always have higher and faster growing personal incomes than in states with rising tax burdens.
What's more, Laffer and Mooreprovide a clear road map for having a health economy with their “10 Golden Rules of Effective Taxation” See below.

CORPORATE WELFARE
Now, about those corporate subsidies, Enterprise Florida and boosting the state's economic development spending from $111 million to $278 million. While we don't know how much of that is earmarked toward incentives and tax breaks, however much it is is too much. It's corporate welfare, and it's morally wrong. No business deserves an unearned benefit.

10 GOLDEN RULES OF TAXATION
1. When you tax something more you get less of it, and when you tax something less you get more of it.

2. Individuals work and produce goods and services to earn money for present or future consumption.

3. Taxes create a wedge between the cost of working and the rewards from working.

4. An increase in tax rates will not lead to a dollar-for-dollar increase in tax revenues, and a reduction in tax rates that encourages production will lead to less than a dollar-for-dollar reduction in tax revenues.

5. If tax rates become too high, they may lead to a reduction in tax receipts. The relationship between tax rates and tax receipts has been described by the Laffer Curve.

6. The more mobile the factors being taxed, the larger the response to change in tax rates. The less mobile the factor, the smaller the change in the tax base for a given change in tax rates.

7. Raising tax rates on one source of revenue may reduce the tax revenue from other sources, while reducing the tax rate on one activity may raise the taxes raised from other activities.

8. An economically efficient tax system has a sensible, broad base and a low rate.

9. Income transfer (welfare) payments also create a de facto tax on work and, thus, have a high impact on the vitality of a state's economy.

10. If A and B are two locations, and if taxes are raised in B and lowered in A, producers and manufacturers will have a greater incentive to move from B to A.

YOUR GOVERNMENT AT WORK
No one should be surprised at the following two news stories. When government intervenes in the market and makes government money available for social programs, the dirtbags find it and abuse it. To wit:

Tampa Bay Times, 2/10:
“[Yolanda Axson] served probation for felony child neglect and then, barred from child care, found a less regulated line of work. She started a company to earn tax dollars tutoring poor kids in Florida's failing schools.
“When state officials saw Axson's name on an application for the government tutoring program ... they stamped their approval, and her business, Busy BEE Services, went to work tutoring Florida's neediest children.
“The cost to taxpayers per student? At least $60 an hour.
“Axson's case points to a larger problem with mandated tutoring in Florida: The program pays public money to people with criminal records, and to cheaters and profiteers who operate virtually unchecked by state regulators ...
“Florida school districts paid at least $7 million last year to tutoring companies run by people with criminal records. Among those who have headed state-approved tutoring firms are a rapist, thieves and drug users.”

WALL STREET JOURNAL, 2/12:
“The U.S. government spent about $2.2 billion last year to provide phones to low-income Americans, but a Wall Street Journal review of the program shows that a large number of those who received the phones haven't proved they are eligible to receive them.
“The Lifeline program — begun in 1984 to ensure that poor people aren't cut off from jobs, families and emergency services — is funded by charges that appear on the monthly bills of every landline and wireless-phone customer. Payouts under the program have shot up from $819 million in 2008, as more wireless carriers have persuaded regulators to let them offer the service.
“A review of five top recipients of Lifeline support conducted by the FCC for the Journal showed that 41% of their more than six million subscribers either couldn't demonstrate their eligibility or didn't respond to requests for certification.”