Friday, August 3, 2007

Where Do Taxes Come From?

The Energy Bill is being held up in the House. Why? Because of a fight about extra taxes on Oil Company profits...

I am not sure about what these extra taxes are trying to solve. The philosophy of the Democrats is that if we tax big profits, the business will have incentives to not make so much money, and, in the case of the Oil Companies, charge less for gasoline... But in reality this is what happens...

Companies, all companies, must make money in order to stay in business. Not only must they make money, but they must make enough money so that they can pay the owners of the company, the stock holders, enough so that other people will invest in the company allowing it to grow and continue to make money. That is what companies have to do in order to survive. If they do not make enough money to attract investors, other companies who DO make enough money will take over their market share and drive them out of business.

So, when companies are selling their product they must charge enough to cover their expenses. What are taxes on profits? EXPENSES!! All companies see money that they are charged in taxes as expenses. Overhead. What do they do to compensate for this expense? Raise the price of their product to off set the loss incurred by the expense. Who ends up paying for the company's tax expense? The consumer. The one who buys the product. In other words, you and me.

We pay taxes on the things we buy (sales tax), we pay our federal income tax, and we pay our state income tax (even if your state does not have income tax you still pay for your state's expenditures via a sales tax), if you own property (your house, your car, your moped) you also pay property tax. On top of all of this, we also pay every single company's tax burden. This is economic fact.

This tax on the profits of Oil Companies will be seen by them as simply another expense and the cost will be passed on to you and I. This tax will end up costing us more for a gallon of gasoline.... While we are on the subject, how much do the Oil Companies make per gallon of gas? $0.05. That's it. How much do we pay in taxes on a gallon of gas? $0.42 on average across the U.S. The rest is the cost of the gasoline. Who is really making the money here?

If the government really wanted to reduce how much we pay for gas, they could cut the taxes on it.

Learn more about taxes by clicking on the FairTax link.
Oil Company Profits:
Gas Taxes:

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