Federal Income Tax on Businesses
Constitution of the United States, Amendment XVI
“Section 1 Taxes on Income
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Amendment XVI, allowing for a federal income tax, was ratified February 3, 1913, almost one hundred years ago.
The purpose of a government tax is to provide the revenue necessary for the operation of government and to carry out the powers of the government. Originally, a federal government tax was not for the purpose of redistributing money to select groups within the population. Originally, a federal government tax was not for the purpose of benefiting one group over another group. Originally, a federal government tax was not for the purpose of punishing one group as opposed to another. Early on, the U.S. Supreme Court ruled that the power to tax is the power to destroy. Thus, one governmental entity could not tax another governmental entity.
After the passage of the 16th Amendment, there was some question whether or not the federal government could tax business income. The Supreme Court eventually ruled that a business was a “legal person” and therefore could be taxed. However, remaining was the question of who ultimately paid such a tax. There are only three possibilities. The business paid all the tax because it was incapable of passing on the tax in the form of higher prices. The ultimate purchaser paid the tax in the form of higher prices as the business successfully passed on the tax to the consumer. Or a combination of one and two, the business paid some of the tax but the ultimate purchaser also paid a portion of the tax through higher prices.
In fiscal year 2009 (which began on October 1, 2008, and ended on September 30, 2009), federal income was $2.105 trillion and outlays were $3.518 trillion, leaving a deficit of $1.413 trillion.
Income Outlays
1) Borrowing to cover deficit 40%
Amount borrowed: $1,413,000,000,000 = one trillion, four hundred thirteen billion dollars
2) Personal income taxes 26%
Amount from personal income tax: $914,680,000,000 = nine hundred fourteen billion, six hundred eighty million dollars
3) Social security, Medicare, and unemployment and other retirement taxes 25%
Social security, etc. taxes: $879,500,000,000 = eight hundred seventy nine billion, five hundred million dollars
4) Excise, customs, estate, gift, and miscellaneous taxes 5%
Excise, etc. taxes: $175,900,000,000 = one hundred seventy five billion, nine hundred million dollars
5) Corporate income taxes 4%
Corporate income taxes: $140,720,000,000 = one hundred forty billion, seven hundred twenty million dollars
Total taxes collected: $2,110,800,000,000 = two trillion, one hundred ten billion, eight hundred million dollars (Difference due to rounding.)
There are basically three types of businesses—corporations, partnerships, and sole proprietors (with variations of the three that I’m not going into). Partnerships and sole proprietors pay their taxes on business income through the individual income tax system. Corporations pay their taxes through the corporate income tax system.
In the 2008-2009 fiscal year, corporate income taxes accounted for about 4% of all revenue collected by the federal government. However, businesses of all three types paid a larger percentage in taxes than this 4% total. A portion of the 26% personal income taxes paid includes taxes paid on partnership and sole proprietor income. All profit earned by a sole proprietor is considered personal income.
Recently, it was reported that General Electric Corporation paid no federal income taxes. Recently, it was reported that oil companies made record profits and President Obama called for a removal of the “tax benefits” received by said companies. Recently, it was reported that Caterpillar Tractor Company made record profits and no one, that I know of, called for any action for or against Caterpillar Tractor Company. However, not only does the federal government tax businesses with one hand, the federal government also gives million of dollars to selected businesses with the other hand.
Here is my proposal to achieve a balanced federal budget. NO business income taxes. Therefore, NO business tax deductions or tax credits. Also, the federal government should not give money to businesses to “save” the business, to promote some “desired“ non-governmental benefit, or any similar governmental “designed” outcome. As long as the money remains with the business and is used for business purposes, no money is taxed; no money is given.
We are a free market economy. To the extend that the federal government taxes businesses as businesses, the federal government is interfering with the free market system. As long as the federal government is giving money, tax credit, and deductions to businesses, the federal government is interfering with the free market system. Let supply and demand determine which businesses grow and prosper and which businesses fail. Let innovation, risk taking, entrepreneurship, and the like determine which businesses grow and prosper and which businesses fail. The government is NOT a good judge of what is needed and wanted by the consumer. Supply and demand is!
Does this mean that businesses could do whatever they want? Of course not. Businesses that are engaged in illegal activities, that engage in fraud, that lie and cheat would still be prosecuted as would anyone else involved in an illegal activity. Does this mean that sole proprietors would not pay any income tax? Of course not. Any money that a sole proprietor takes out of the business for non-business uses would be taxed as personal income just as wages paid to a worker of a corporation would be taxed as personal income. But, if business income is used for business purposes, to grow the business then it would not be taxed. Also, if the business had a loss, then that loss could not be used to offset taxes on non-business income since business income is not taxed.
Of course, this could and should not be done in isolation. Tomorrow I plan to discuss changes in the personal income tax system to return the system to its original, necessary purpose—to collect revenue for the operation of government and to carry out the powers of the government.
Constitution of the United States, Amendment XVI
“Section 1 Taxes on Income
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Amendment XVI, allowing for a federal income tax, was ratified February 3, 1913, almost one hundred years ago.
The purpose of a government tax is to provide the revenue necessary for the operation of government and to carry out the powers of the government. Originally, a federal government tax was not for the purpose of redistributing money to select groups within the population. Originally, a federal government tax was not for the purpose of benefiting one group over another group. Originally, a federal government tax was not for the purpose of punishing one group as opposed to another. Early on, the U.S. Supreme Court ruled that the power to tax is the power to destroy. Thus, one governmental entity could not tax another governmental entity.
After the passage of the 16th Amendment, there was some question whether or not the federal government could tax business income. The Supreme Court eventually ruled that a business was a “legal person” and therefore could be taxed. However, remaining was the question of who ultimately paid such a tax. There are only three possibilities. The business paid all the tax because it was incapable of passing on the tax in the form of higher prices. The ultimate purchaser paid the tax in the form of higher prices as the business successfully passed on the tax to the consumer. Or a combination of one and two, the business paid some of the tax but the ultimate purchaser also paid a portion of the tax through higher prices.
In fiscal year 2009 (which began on October 1, 2008, and ended on September 30, 2009), federal income was $2.105 trillion and outlays were $3.518 trillion, leaving a deficit of $1.413 trillion.
Income Outlays
1) Borrowing to cover deficit 40%
Amount borrowed: $1,413,000,000,000 = one trillion, four hundred thirteen billion dollars
2) Personal income taxes 26%
Amount from personal income tax: $914,680,000,000 = nine hundred fourteen billion, six hundred eighty million dollars
3) Social security, Medicare, and unemployment and other retirement taxes 25%
Social security, etc. taxes: $879,500,000,000 = eight hundred seventy nine billion, five hundred million dollars
4) Excise, customs, estate, gift, and miscellaneous taxes 5%
Excise, etc. taxes: $175,900,000,000 = one hundred seventy five billion, nine hundred million dollars
5) Corporate income taxes 4%
Corporate income taxes: $140,720,000,000 = one hundred forty billion, seven hundred twenty million dollars
Total taxes collected: $2,110,800,000,000 = two trillion, one hundred ten billion, eight hundred million dollars (Difference due to rounding.)
There are basically three types of businesses—corporations, partnerships, and sole proprietors (with variations of the three that I’m not going into). Partnerships and sole proprietors pay their taxes on business income through the individual income tax system. Corporations pay their taxes through the corporate income tax system.
In the 2008-2009 fiscal year, corporate income taxes accounted for about 4% of all revenue collected by the federal government. However, businesses of all three types paid a larger percentage in taxes than this 4% total. A portion of the 26% personal income taxes paid includes taxes paid on partnership and sole proprietor income. All profit earned by a sole proprietor is considered personal income.
Recently, it was reported that General Electric Corporation paid no federal income taxes. Recently, it was reported that oil companies made record profits and President Obama called for a removal of the “tax benefits” received by said companies. Recently, it was reported that Caterpillar Tractor Company made record profits and no one, that I know of, called for any action for or against Caterpillar Tractor Company. However, not only does the federal government tax businesses with one hand, the federal government also gives million of dollars to selected businesses with the other hand.
Here is my proposal to achieve a balanced federal budget. NO business income taxes. Therefore, NO business tax deductions or tax credits. Also, the federal government should not give money to businesses to “save” the business, to promote some “desired“ non-governmental benefit, or any similar governmental “designed” outcome. As long as the money remains with the business and is used for business purposes, no money is taxed; no money is given.
We are a free market economy. To the extend that the federal government taxes businesses as businesses, the federal government is interfering with the free market system. As long as the federal government is giving money, tax credit, and deductions to businesses, the federal government is interfering with the free market system. Let supply and demand determine which businesses grow and prosper and which businesses fail. Let innovation, risk taking, entrepreneurship, and the like determine which businesses grow and prosper and which businesses fail. The government is NOT a good judge of what is needed and wanted by the consumer. Supply and demand is!
Does this mean that businesses could do whatever they want? Of course not. Businesses that are engaged in illegal activities, that engage in fraud, that lie and cheat would still be prosecuted as would anyone else involved in an illegal activity. Does this mean that sole proprietors would not pay any income tax? Of course not. Any money that a sole proprietor takes out of the business for non-business uses would be taxed as personal income just as wages paid to a worker of a corporation would be taxed as personal income. But, if business income is used for business purposes, to grow the business then it would not be taxed. Also, if the business had a loss, then that loss could not be used to offset taxes on non-business income since business income is not taxed.
Of course, this could and should not be done in isolation. Tomorrow I plan to discuss changes in the personal income tax system to return the system to its original, necessary purpose—to collect revenue for the operation of government and to carry out the powers of the government.
posted by Christian Gunslinger at 4:20 AM
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