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Friday, January 28, 2005

Econ 101: Myth #1 - Corporations pay taxes

Contrary to popular belief, corporations do NOT pay taxes.

Let me repeat: corporations do NOT pay taxes.

Surely I jest, eh?

Now technically, corporations do pay taxes. But where is the money taken from to pay the taxes? Out of the profits? Oh no.

Corporate tax increases are funded by price increases. And who pays the price increase, you ask? You and I.

For example, the corporate tax rate for say, Starbucks, increases by 2%. Surely they can afford such a modest increase, what with the outrageous profit margins they must have? Wrong. Their profits margins are a modest 7%. They are going to pay for that tax increase by increasing the price of their coffee accordingly.

So what appeared to be a great idea (soak the evil corporations) ends up costing the average person.

This is a great example of the "Law of Unintended Consequences".

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