Franchise taxes are a type of tax levied on corporations by states in the United States. Corporations and similar business entities enjoy certain legal benefits. One is the ability to exist indefinitely until terminated by the desire of the owners, or until declared insolvent and allowed to die. This allows the business of the corporation to persist beyond the lives of those who began the business. It also allows for the accumulation of capital and ownership separate from people who manage the business of the corporation. In this way corporations allow the accumulation of wealth benefited by professional management. Another important benefit of incorporation is that it shields its shareholders from liability for the actions of the corporation beyond the shareholders’ investment in the corporation.
It is beyond the scope of this writing to explore corporations and related entities more fully. Suffice it to say that the price exacted for these benefits of incorporation is that the corporation must be chartered in a sovereign jurisdiction. Each state in the United States has the power to enact laws allowing for the charter of a corporation under its laws. This has created a push-pull competition between the states to attract corporations to be chartered within that state as opposed to another.
Many public corporations have historically been chartered in Delaware because of that state’s aggressive posture at providing benefits and protections to its corporations and shareholders. Many corporations are chartered in Nevada so as to avoid corporate income taxes. And so, the game has gone on and continues to go on.
Corporations pass on the costs of franchise taxes to consumers in the as higher prices for goods and services, which can make it more difficult for lower-income people to afford necessities. This is problematic in the United States, where income and wealth inequality are significant and growing issues.
What are Franchise Taxes?
Franchise taxes are a type of tax that is levied by state governments on businesses that are incorporated or registered to do business within the state. These taxes are separate from federal, state, and local income taxes and are imposed by each state individually.
The specific rules and regulations governing franchise taxes vary between states, but they are typically based on the business’s net worth, capital stock, or other factors related to the business’s size and financial position. For example, some states calculate franchise taxes based on the value of a corporation’s outstanding shares of stock, while others calculate the tax based on a company’s assets or net income.
Franchise taxes are typically paid annually and are used to generate revenue for state governments, which are responsible for providing public services and infrastructure that benefit businesses and the community. These taxes are used to fund a wide range of services, including education, public safety, transportation, and healthcare.
Franchise taxes are separate from federal income taxes and are imposed by each state individually. Therefore, the rules and regulations governing franchise taxes vary significantly between states, and businesses that operate in multiple states may be subject to different franchise tax requirements in each jurisdiction.
The purpose of franchise taxes is to generate revenue for state governments.
How do Franchise Taxes Work?
Franchise taxes are a type of tax that state governments charge on businesses incorporated or registered to do business within the state. The specific rules and regulations governing franchise taxes vary between states, but some general principles apply across most jurisdictions. Here’s how franchise taxes work in the United States:
What is the Basis for Franchise Taxes?
The basis for franchise taxes varies between states. Still, it is typically based on the business entity’s net worth, capital stock, or other factors related to the business’s size and financial position. For example, some states calculate franchise taxes based on the value of a corporation’s outstanding shares of stock, while others calculate the tax based on a company’s assets or net income.
Who Pays Franchise Taxes?
Franchise taxes are typically paid by corporations, limited liability companies (LLCs), and other types of businesses that are incorporated or registered to do business within the state. In some cases, businesses that are not incorporated or registered to do business within the state may also be subject to franchise taxes if they have a significant presence within the state.
When are Franchise Taxes Due?
The due date for franchise taxes varies between states, but it is typically based on the anniversary of the business’s incorporation or registration to do business within the state. For example, some states require franchise taxes to be paid on the first day of the business’s fiscal year, while others require the tax to be paid on the anniversary of the business’s incorporation or registration.
How is the Amount of Franchise Tax Determined?
The amount of franchise tax owed by a business is typically calculated based on the basis for the tax (such as net worth or capital stock) and the tax rate established by the state. The tax rate for franchise taxes varies between states, and it may be a flat rate or a percentage of the basis for the tax.
What Happens if a Business Doesn’t Pay Franchise Taxes?
If a business fails to pay franchise taxes on time or in the correct amount, the state may take several actions to collect the tax. This may include imposing penalties and interest on the unpaid tax, seizing assets or property, or revoking the business’s right to do business within the state.
History of Franchise Taxes
Franchise taxes have a long history in the United States, dating back to the early 20th century. Here is a brief overview of the history of franchise taxes in the United States:
Early 20th Century: In the early 1900s, several states began levying franchise taxes on corporations. These taxes were based on the corporation’s capital stock’s value and were used to fund state government operations.
Great Depression Era: During the Great Depression of the 1930s, several states increased their franchise tax rates to generate additional revenue. Franchise taxes became an essential source of revenue for state governments during this period.
Post-World War II Era: In the post-World War II era, franchise taxes continued to be an essential source of revenue for state governments. Many states updated their franchise tax laws during this period to reflect changes in the business landscape, such as the growth of multistate corporations.
Late 20th and Early 21st Centuries: In recent decades, franchise taxes have remained an important source of revenue for state governments, although the specific rules and regulations governing these taxes vary significantly between states. Some states have updated their franchise tax laws in response to changes in the economy and business practices, such as the growth of online retailers.
Impact of Franchise Taxes
Franchise taxes can significantly impact businesses, particularly small businesses that may have limited resources to cover the costs of these taxes. For example, small businesses may have a relatively low net worth or capital stock but may still be required to pay significant franchise taxes. This can place a significant financial burden on these businesses, making it more difficult for them to grow and succeed.
Franchise taxes can also impact the state’s economy. These taxes are used to fund public services and infrastructure that benefit businesses and individuals alike. For example, franchise taxes may be used to fund the construction and maintenance of roads, bridges, and other infrastructure businesses rely on to transport goods and services. These taxes may also be used to fund public schools, which help to educate the workforce that businesses depend on.
Franchise Tax Disproportionately Impact Lower-Middle Income People
Franchise taxes are a tax that state governments impose on businesses incorporated or registered to do business within the state. These taxes are used to generate revenue for state governments, which are responsible for providing public services and infrastructure that benefit businesses and the community. However, franchise taxes can significantly impact lower-middle-income people, as these individuals may be more likely to work for or rely on small businesses that are subject to franchise taxes. Franchise taxes are virtually invisible to the public and become a significant obstacle for the poor and even the middle class to obtain the business benefits of incorporation.
Impact on Small Businesses
Franchise taxes are a tax levied by state governments on businesses incorporated or registered to do business within the state. These taxes can significantly impact small businesses, which may have limited resources to cover the costs of these taxes. Here are some of the ways that franchise taxes can impact small businesses:
Financial Burden
Franchise taxes can place a significant financial burden on small businesses. Small businesses may have a relatively low net worth or capital stock but may still be required to pay significant amounts in franchise taxes. This can make it more difficult for small businesses to invest in their operations or to repay loans.
Difficulty in Growth
Franchise taxes can make it more difficult for small businesses to grow and expand their operations. When businesses are required to pay significant amounts in franchise taxes, they may have less money available to invest in their business or to hire new employees. This can limit the ability of small businesses to expand their operations and create new job opportunities.
Competitiveness
Franchise taxes can also impact the competitiveness of small businesses. When small businesses are required to pay significant amounts in franchise taxes, they may be less able to compete with larger businesses with more resources. This can make it more difficult for small businesses to survive and succeed in the marketplace.
Compliance Costs
Small businesses may also incur additional compliance costs associated with franchise taxes. For example, small businesses may need to hire accountants or tax professionals to ensure that they comply with the specific rules and regulations governing franchise taxes in their state. These additional costs can significantly burden small businesses, particularly those with limited resources.
Availability of Loans
Franchise taxes can impact the availability of loans for small businesses. When businesses are required to pay significant amounts in franchise taxes, they may have less money to invest in their business or repay loans. This can make it more difficult for small businesses to obtain the financing they need to start or expand their operations.
Impact on Employees
Franchise taxes can also impact employees who work for small businesses. When small businesses are required to pay significant amounts in franchise taxes, they may be less able to offer competitive salaries or benefits to their employees. This can make it more difficult for employees to make ends meet or access healthcare, retirement savings, or other benefits critical to their financial security. Here are some of the ways that franchise taxes can impact employees:
Limited Wage Increases
Franchise taxes can limit the ability of small businesses to increase wages for their employees. When businesses are required to pay significant amounts in franchise taxes, they may have less money available to invest in their operations or to offer competitive salaries to their employees. This can limit the ability of employees to earn higher wages and improve their financial situation.
Reduced Benefits
Franchise taxes can also impact the availability of benefits for employees. When businesses are required to pay significant amounts in franchise taxes, they may be less able to offer healthcare, retirement savings, or other benefits critical to employees’ financial security. This can make it more difficult for employees to access the resources they need to live healthy and financially stable lives.
Job Losses
Franchise taxes can also impact the availability of jobs for employees. When businesses are required to pay significant amounts in franchise taxes, they may be less likely to expand their operations or invest in new hires. This can limit the availability of job opportunities for employees who may be seeking work in these industries.
Limited Job Security
Franchise taxes can also impact the job security of employees. When businesses must pay significant franchise taxes, they may be more likely to lay off employees or reduce their work hours to reduce costs. This can make it more difficult for employees to maintain a stable and consistent income, impacting their financial security and overall well-being.
How Much Revenue Comes from Franchise Taxes?
State governments levy franchise taxes and no federal franchise tax exists in the United States. The revenue generated by franchise taxes varies significantly between states, and no comprehensive data is available on the total amount of franchise tax revenue collected annually across all states.
However, some states do provide information on the revenue generated by franchise taxes within their borders. For example, in 2020, the state of Texas collected approximately $4.1 billion in franchise tax revenue, while the state of California collected approximately $9.4 billion in total corporate tax revenue, which includes franchise taxes.
Franchise taxes are just one type of tax that is levied on businesses in the United States, and the amount of revenue generated by these taxes depends on a variety of factors, such as the size and financial position of businesses subject to the tax, the tax rate set by the state, and the overall economic conditions in the state.
While no comprehensive data has been found on the total amount of franchise tax revenue paid across all states in the United States, franchise taxes are a significant source of revenue for many states and serve to fund public services and infrastructure that benefit businesses and the community.
But a little discussed issue regarding the patchwork of franchise taxes in the United States is the distortion of the free market, which allocates capital to those human enterprises that are most efficient. More on this problem is contained in A Taxing Problem, by Dr. Mitch. In his book Dr. Mitch shows that tax justice would have corporate and corporation-like entities pay taxes like living persons. Since the laws that allow these entities to exist and thrive give them attributes of personhood, they should be required to pay a small annual tax, say 2%, on net worth. The elimination of franchise tax would not only be fairer, but it would allow a significant reduction in the complexity of governments and reduction in the financial costs attendant to that complexity. I would result in a freer market economy and substantially level the playing field of business enterprise.
In Conclusion
Franchise taxes can have a significant impact on lower-income people in the United States, both directly through higher prices and indirectly through reduced access to goods and services. This can exacerbate economic inequality and make it more difficult for lower-income people to achieve financial stability and upward mobility. Franchise taxes can contribute to the consolidation of wealth and power in the hands of large corporations, further entrenching economic inequality in American society.
Policymakers should consider potential solutions to address the deleterious impact of franchise taxes on lower-income people that serve to tip the advantages of the economy in favor of the wealthy and limiting economic opportunity to poor and middle classes in America. Again, a deeper dive into this subject can be had by reading A Taxing Problem, by Dr. Mitch.
Excise taxes are taxes on specific goods or services that are typically included in the price of the product or service. Governments claim that they usually impose these taxes to raise revenue, discourage certain behaviors or activities, or to fund specific projects or programs. Excise taxes can be levied at the federal, state, or local level and are typically assessed as a percentage of the purchase price or as a fixed amount per unit.
Examples of products or services subject to excise taxes include gasoline, tobacco products, alcohol, firearms, air transportation, and specific environmental hazards. The revenue generated from excise taxes is typically used to fund specific government programs or initiatives, such as infrastructure projects, public health initiatives, or education programs.
The federal government imposes excise taxes on various products and services in the United States, including gasoline, tobacco products, firearms, and airline tickets. State and local governments may also impose excise taxes instead of federal ones.
Excise taxes can be controversial, with some arguing that they unfairly target certain products or industries and burden consumers. I say that excise taxes disproportionately affect the poor and middle class and that there are more appropriate solutions for supporting our government needs through taxes. Others say that excise taxes are an effective way to raise revenue and discourage certain behaviors that can negatively impact public health or the environment. But using excise taxing in this way is not among the most effective ways to help with public health and the environment.
Excise taxes have a long history in the United States, dating back to colonial times. The government has used these taxes to fund various programs and services, regulate certain industries, and promote public health. In A Taxing Problem. The Psychologist’s Prescription for a Just Tax System, Dr. Mitch relates in his chapter on the history of taxation other interesting facts that go beyond the history presented here.
Early History of Excise Taxes in the United States
The British government imposed the first excise tax in the United States on the colonies in 1764. The tax, which was levied on sugar, molasses, and other goods, was designed to raise revenue for the British government. The colonists were outraged by the tax, which they saw as violating their rights as British subjects. The tax was eventually repealed, but the incident served as a precursor to the American Revolution.
During the Revolutionary War, the Continental Congress levied excise taxes on various goods to fund the war effort. These taxes were often unpopular, leading to protests and even riots in some areas. After the war, the new United States government continued using excise taxes to generate revenue.
Early excise taxes in the United States were levied on goods such as alcohol, tobacco, and sugar. These taxes were often used to fund specific government programs, such as constructing roads and canals. In the early 19th century, the government began using excise taxes to regulate industries.
The Whiskey Rebellion
One of the most significant events in the history of excise taxes in the United States was the Whiskey Rebellion. In 1791, the government imposed an excise tax on distilled spirits, including whiskey. The tax was highly unpopular in Western Pennsylvania, where many farmers relied on producing and selling whiskey to make a living. In 1794, a group of farmers and distillers organized a protest which eventually turned violent. President George Washington ordered troops to the region to put down the rebellion. The rebels were eventually defeated, and the incident served as a reminder of the power of the federal government to enforce its laws.
The Civil War and Beyond
During the Civil War, the government imposed excise taxes on various goods to fund the war effort. These taxes were later extended to cover a range of industries, including firearms, telegraphs, and even playing cards. In the early 20th century, the government imposed excise taxes on automobiles and gasoline to fund the construction of roads.
In the 1930s, the government introduced a tax on alcohol to fund programs to combat alcoholism. The tax was later increased and extended to cover other goods, including tobacco products. These taxes have been used to fund various programs and services, including public health initiatives and infrastructure projects.
Recently, there has been renewed interest in using excise taxes to promote public health and combat social issues. For example, many states have introduced taxes on sugary drinks to reduce obesity and diabetes rates. Additionally, there has been increased interest in using excise taxes to address environmental issues, such as carbon emissions. However, this methodology has yet to be proven as an effective deterrence, or more effective than other legislative approaches. Some of these alternative legislative approaches are described in A Taxing Problem. The Psychologist’s Prescription for a Just Tax System, by Dr. Mitch.
Common Excise Tax Products
Excise taxes can apply to a wide range of products and services. Some common examples include:
Tobacco products, such as cigarettes, cigars, and smokeless tobacco
Alcohol, including beer, wine, and distilled spirits
Gasoline and other fuels, such as diesel and jet fuel
Firearms and ammunition
Luxury goods, such as high-end cars or yachts
Air transportation, such as airline tickets and aviation fuel
Environmental hazards, such as chemicals or hazardous waste
Communication services, such as telephone and Internet services
Medical devices, such as prosthetics and pacemakers
Specific products and services subject to excise taxes can vary by country and jurisdiction. For example, the federal government imposes excise taxes on a wide range of products and services in the United States. Additionally, many state and local governments impose their excise taxes on top of federal taxes.
Why Excise Taxes are Controversial.
Excise taxes have long been debated with advocates and opponents presenting arguments on both sides. While excise taxes can effectively raise revenue and discourage behaviors that can negatively impact public health and the environment, they are also regressive and burden low-income and middle-income consumers disproportionately.
One of the main arguments against excise taxes is that they are regressive, meaning they disproportionately affect lower-income and middle-income individuals and families. This is easily seen for excise taxes on products like tobacco, alcohol, and gasoline, which low-income consumers tend to use more heavily.
For example, a person living in a rural area with limited public transportation may need to drive long distances to work and may require the means to purchase a fuel-efficient vehicle. As a result, a gasoline tax significantly impacts their finances, and forces them to allocate more of their income toward transportation expenses.
Similarly, taxes on products like tobacco and alcohol also impact low-income individuals more heavily, who tend to use these products more than high-income earners. Studies have shown that lower-income individuals are more likely to smoke and consume alcohol at higher levels than higher-income individuals. Even high-income earners who smoke and drink can only consume so much of these products, and the excise taxes imposed on them are less significant items in their budgets. As a result, taxes on these products place a disproportionate burden on lower-income consumers.
Another problem with excise taxes is that they do not justify those results that are a part of their rationale. For example, taxes on tobacco products and alcohol will not significantly reduce consumption among heavy users, who are often addicted to these products. Similarly, taxes on gasoline and other fuels may not significantly reduce overall consumption or encourage public transportation, particularly in areas with limited access to these options.
Despite these concerns, there are also strong arguments favoring excise taxes. These taxes can effectively raise revenue for critical public health and environmental initiatives. In addition, taxes on products like tobacco and alcohol can help discourage excessive consumption, which can lead to various health problems and associated costs for individuals and society.
However, no data suggest that because of the price of alcohol and tobacco, people are going without. If anything, the prices are high, and people are finding alternative ways to get alcohol and tobacco. Excise taxes are likely not to discourage excessive consumption.
Ultimately, the controversy surrounding excise taxes in the United States highlights the difficult balancing act that policymakers must navigate when making decisions about tax policy. While excise taxes can effectively raise revenue and theoretically discourage negative behaviors, they also place a disproportionate burden on low-income consumers, who may already be struggling to make ends meet.
As a result, it’s crucial for policymakers to carefully consider the implications of excise taxes on all segments of the population and to work to mitigate their negative impacts on low-income individuals and families. In in A Taxing Problem. The Psychologist’s Prescription for a Just Tax System, Dr. Mitch examines the inherent unfairness in this and other ways that government fund its functions and programs and proposes a solution rooted in practicality and universally held concepts of justice.
Lower Income People are Impacted the Most
Excise taxes disproportionately impact lower-income individuals, as they tend to spend a higher proportion of their income on goods and services subject to these taxes. Excise taxes increase the cost of essential goods and services, which can further strain already tight budgets. For example, suppose a person relies on a car to get to work or access essential services. In that case, an excise tax on gasoline can increase their transportation costs and reduce their disposable income for other needs, such as food or housing.
Excise taxes create unintended consequences, such as the growth of black markets for the evasion of taxes. Lower-income individuals who may already be struggling to make ends meet may turn to cheaper, unregulated products, which can be dangerous or of lower quality. Moreover, evasion of taxes leads to reduced revenue for the government, which can impact social programs and services.
How Much Are Americans Actually Paying in Excise Taxes?
According to data from the U.S. Department of the Treasury, in the fiscal year 2021 (October 2020 – September 2021), the total excise tax revenue collected by the federal government was approximately $97.3 billion. It is worth noting that state and local governments also levy excise taxes, and the total amount of revenue generated by excise taxes in the United States is, therefore, higher than the federal excise tax revenue alone. However, the specific amount generated by state and local excise taxes can vary widely depending on the state and the type of tax in question.
According to the Tax Foundation, in the fiscal year 2021, states collected an estimated $20.1 billion in excise tax revenue, with the largest categories being gasoline, cigarette, and alcohol taxes. Therefore, the total revenue generated by excise taxes in the United States (federal, state, and local) in the fiscal year 2021 is estimated to be approximately $117.4 billion.
That’s $117.4 billion taken directly out of the pockets of the poor and middle class. In A Taxing Problem. The Psychologist’s Prescription for a Just Tax System, Dr. Mitch demonstrates how this and other ways of raising revenue for government and its programs are unfair. How this unfairness results in the anger and frustration seen in the United States, and indeed, the world today. He demonstrates how this anger and experienced unfairness results in a more violent society. And more importantly, he provides the solution. His book is available in paperback, for download, and in audiobook formats.
Business property taxes are a tax levied on the value of a business’s property or real estate holdings. While these taxes play a role in funding public services and infrastructure that benefit businesses and the community, they can also disproportionately impact lower-income people. When businesses are required to pay significant amounts in property taxes, they must find ways to pass on the costs to consumers through higher prices for goods and services.
This makes it more difficult for lower-income people, who may have less disposable income, to afford necessities. Additionally, business property taxes can impact the availability of jobs and services in low-income communities, exacerbating economic inequality and poverty.
What are Business Property Taxes?
Business property taxes are taxes that are levied on the value of property owned by businesses. This includes land, buildings, and other structures that are used for commercial purposes, such as offices, factories, and retail stores. The property’s value is typically assessed by a government agency, such as the county assessor’s office, and the tax is calculated as a percentage of the assessed value. States, counties, and municipalities also tax businesses on the value of non-real estate property used in business, property such as furniture, x-ray machines, printing presses, computer equipment, etc.
The purpose of Business Property Taxes is to generate revenue for state and local governments, which are responsible for providing public services and infrastructure that benefit businesses and the community. And the taxes are justified on that basis. These taxes are used to fund a wide range of services, including education, public safety, transportation, and health departments. Business Property Taxes are thought to help ensure that businesses pay a fair share of the costs associated with providing these services and maintaining the infrastructure they rely on.
How do Business Property Taxes Work?
Business property taxes are a type of tax that is levied on the value of a business’s property or real estate holdings. These taxes are assessed by local governments and are used to fund public services and infrastructure. Here’s how business property taxes work in the United States:
Property Valuation
The first step in determining business property taxes is to assess the value of the business’s property or real estate holdings. This valuation is typically performed by a local government assessor who evaluates the property’s value based on several factors, including location, condition, and market trends. As in most taxation in the United States, though, assessors are dependent, to a great extent, upon voluntary taxpayer self-reporting. This dependence provides ample opportunity for cheating.
Tax Rate
Once the property’s value has been assessed, the local government applies a tax rate to that value to determine the amount of property tax the business owes. The tax rate may be expressed as a percentage of the property value or as a dollar amount per $1,000 of assessed value.
Payment Schedule
Business property taxes are typically paid annually, although the specific payment schedule may vary among jurisdictions. The local government usually sets the due date for payment of property taxes and may be based on the fiscal year or calendar year.
Tax Assessment Appeals
If a business believes that the assessed value of its property is inaccurate or unfairly high, it may appeal the assessment through a process established by the local government. This may involve providing additional documentation or evidence to support their claim or engaging in a hearing or mediation process with the assessor’s office.
Exemptions and Deductions
Some businesses may be eligible for exemptions or deductions from property taxes based on the nature of their operations or the use of their property. For example, businesses operating in certain industries or locations may be eligible for tax breaks or incentives designed to encourage economic development or investment. Or religious organizations are largely exempt even though they too depend upon the infrastructure supported by government.
History of Business Property Taxes
Business property taxes have a long history in the United States, dating back to colonial times. Here is a brief overview of the history of business property taxes in the United States:
Colonial Times: In the early colonial period, local governments levied property taxes on all property types, including land, livestock, and household goods. These taxes were used to fund local government operations and were assessed based on the property’s estimated value.
Post American Revolution: After the Revolutionary War, property taxes became an essential source of revenue for local governments in the newly formed United States. Property taxes were used to fund public services and infrastructure, such as roads, schools, and hospitals.
Industrialization Era: In the late 19th and early 20th centuries, the United States underwent a period of rapid industrialization, and business property taxes became a significant source of revenue for local governments. As businesses grew and expanded, their property holdings increased, and local governments sought to capture a portion of this value through property taxes.
Modern Era: Today, business property taxes remain an important source of revenue for local governments in the United States. The specific rules and regulations governing business property taxes vary by state and local jurisdiction. Still, generally, businesses are required to pay property taxes based on the assessed value of their property holdings.
Impact of Business Property Taxes
Business Property Taxes can significantly impact businesses, particularly small businesses that may have limited resources to cover the costs of these taxes. For example, small businesses may own property that is not generating significant revenue but may still be required to be assessed resulting in payment of significant amounts in Business Property Taxes. This can place a substantial financial burden on these businesses, making it more difficult for them to grow and succeed. Here are some of the key impacts of business property taxes:
Revenue Generation
Business property taxes are a significant source of revenue for local governments in the United States. This revenue is used to fund public services and infrastructure.
Financial Burden on Businesses
Property taxes can be a significant financial burden for businesses, particularly small businesses with limited resources to cover these costs. The amount of property tax owed by a business is based on the assessed value of their property, which can be affected by various factors, including location, condition, and market trends.
Competitiveness
Business property taxes can impact the competitiveness of businesses. When businesses are required to pay significant amounts in property taxes, they may be less able to compete with larger businesses with more resources. This can make it more difficult for small businesses to survive and succeed in the marketplace.
Compliance Costs
Businesses may also incur additional compliance costs associated with property taxes. For example, businesses may need to hire accountants or tax professionals to ensure they comply with the specific rules and regulations governing property taxes in their local jurisdiction. These additional costs can significantly burden businesses, particularly those with limited resources.
Investment Decisions
Business property taxes can impact the investment decisions of businesses. When businesses are required to pay significant property taxes, they may have less money available to invest in their operations or hire new employees. This can limit the ability of businesses to expand their operations and create new job opportunities.
Business property taxes have a significant impact on businesses and the broader community in the United States. Policymakers and business owners should consider potential solutions and ensure the tax system is fair and equitable for all businesses.
Business Property Taxes can also impact the community as a whole. These taxes are used to fund public services and infrastructure that benefit businesses and individuals alike. For example, Business Property Taxes may fund the construction and maintenance of roads, bridges, and other infrastructure that businesses rely on to transport goods and services. These taxes may also be used to fund public schools, which help to educate the workforce upon which businesses depend.
Business Tax Disproportionate Impact on Lower-Middle-Income People
Business property taxes impact lower-income people disproportionately in several ways:
Higher Prices
Businesses must, to survive, pass on the costs of property taxes to consumers through higher prices for goods and services. This can disproportionately impact lower-income people, who have less disposable income and are more sensitive to price increases. For example, suppose a grocery store in a low-income neighborhood is required to pay higher property taxes. In that case, they must increase the prices of their goods to cover the costs, making it more difficult for lower-income residents in the area to afford groceries.
Reduced Availability of Goods and Services
When businesses are required to pay significant amounts in property taxes, they may have less money to invest in their operations or offer new products or services. This can limit the availability of goods and services in low-income neighborhoods or rural areas, where businesses may be less likely to operate due to lower profit margins. For example, suppose a community has a limited number of businesses that are subject to high property taxes. In that case, those businesses may be less likely to invest in new products or services that could benefit lower-income residents in the area.
Job Losses
Business property taxes can impact the availability of jobs in low-income communities. When businesses are required to pay significant amounts in property taxes, they become more likely to lay off employees or to reduce their work hours to reduce costs. This can make it more difficult for lower-income people to find stable employment opportunities in their communities, further exacerbating economic inequality and poverty.
Displacement
Business property taxes can also contribute to the displacement of lower-income people from their homes and neighborhoods. As property values increase due to higher taxes, landlords may choose to sell their properties or raise rents, making it more difficult for low-income renters to afford housing in their community. This can lead to gentrification and displacement of long-term residents, which can have negative social and economic impacts on the affected communities.
Overall, business property taxes can significantly impact lower-income people in the United States directly through higher prices and reduced access to goods and services and indirectly through job loss and displacement.
Business Property Tax Revenue
Business property taxes are levied by local governments in the United States, and the amount of revenue generated by these taxes varies significantly between jurisdictions. Therefore, no comprehensive data could be found on the total revenue generated by business property taxes across all local governments in the United States. But it surely runs into the billions.
Final Thoughts
Business property taxes can directly impact lower-income people in the United States through higher prices for goods and services and indirectly through reduced access to jobs and services. This can exacerbate economic inequality and make it more difficult for lower-income people to achieve financial stability and upward mobility. Additionally, business property taxes can contribute to the displacement of lower-income residents from their homes and neighborhoods, further exacerbating economic inequality and social dislocation.
Policymakers should consider potential solutions to address the impact of business property taxes on lower-income people, such as providing tax breaks or incentives for businesses operating in low-income communities, investing in small business development, and supporting affordable housing initiatives to ensure that low-income residents remain in their communities. By addressing the impact of business property taxes on lower-income people, policymakers can help create a more equitable and prosperous society for all Americans.
In his book, A Taxing Problem, The Psychologist’s Prescription for a Just Tax System, Dr. Mitch reveals the inherent inequity of this and other taxes based upon the assessed value of property. Smaller enterprises that must carry large amounts of debt to operate are required to pay the same amounts in property taxes as another enterprise, with the same business property and without debt. The net worth or wealth represented by each of these businesses is radically different, and yet they are required to pay the same amount in property taxes. That is why, he argues, that a just tax system, one that levels the playing field and does not favor the wealthy over the less wealthy, would tax only based upon net worth. His examination of the issue demonstrates that all government and its services could be financed with only a small 2% tax on net worth, without exemptions.
How many times in your life have you heard “life isn’t fair!”? Either you heard yourself exclaiming it in a moment of distress or perhaps you had a punishing parent tell it to you in an attempt to teach you a lesson. Life isn’t fair, and the dialectic of that phrase is that most of us seek fairness in not only our individual lives but also socially and economically. The drive for justice and fairness is innately placed deep in most Americans. Now more than ever Americans are feeling political unrest. Dr. Mitch explains; “Since societal anger is escalating, we can infer that the pain of living in society has been escalating. This pain is the source of political unrest, which is escalating in our country and the world due to treatment or conditions that are perceived as unfair”.
The United States Census reports that the official poverty rate in 2021 was 11.6% or 37.9 million people. To say that people are feeling social and economic strain would be an understatement. A large part of why people feel this way is due to not being paid liveable wages. Especially since the pandemic hit people are taking second jobs and creating “side hustles” just to get by. The middle class is disappearing and the unrest is palpable. With the middle class disappearing the separation between the poor and the wealthy is that much more evident. One major reason why this division is occurring is in our taxation system. Our system is currently designed to keep the rich wealthy and the poor getting poorer.
Taxes. Many believe money is the root of all evil. However, the world needs roots. We know living tax-free is not a solution, however, a fair tax system should be implemented to help even the score. Taxes are widely misunderstood and confusing for a lot of people. Because of this taxes can be incredibly sneaky and there are a plethora of ways that Americans are taxed unfairly.
Taxes are something a lot of people wished they knew more about. It often feels like an impossible task. Most Americans know that taxes play a vital role in our system but can’t help feeling that in some way or another we are also getting screwed by that very system. It’s like when you go to get an oil change as someone who knows nothing about vehicles. You may go in for car maintenance or repair with the understanding that you know nothing about cars and that you might be overcharged for not only the oil change but maybe even sold something you didn’t actually need. You simply don’t have the knowledge to be able to counter whatever the repairman is saying. This is how many people feel when it comes to taxes.
History of Taxes
Taxes have been around almost as long as humans have. The oldest known tax system occurred over 6,000 years ago in Babylonia to finance a war. Since then the United States has been utilizing a tax system that has been rooted in unfairness and targets the poor and middle class.
Declaration of Independence
On July 4, 1776, the Continental Congress adopted the Declaration of Independence. The Declaration of Independence explains that “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”. This is a pertinent part of American history and the taxation system because our tax system does not currently treat all people equally. Some people are born into affluent families and inherit wealth, success, and business. Some are born into homelessness. People are not all inherently born equal. Each person that lives in the United States has a completely different human experience and has different advantages and disadvantages. Therefore to honor that portion of the Declaration of Independence each human needs to be treated as such that evens out the playing field.
16th Amendment
The 16th amendment is widely known as the amendment that changed the way the United States taxes people forever. The 16th amendment was passed in 1909 in response to the 1895 Supreme Court case Pollock V Farmers Loan and Trust Co. The 16th Amendment states; “Congress shall have the 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.” This Amendment established congress’s right to impose a federal income tax. Before the 20th century, most taxes were collected through tariffs rather than income.
Why Do We Have to Pay for Taxes?
You may be wondering what the point is in taxes anyways. You might be aware of the income tax that is taken from your paycheck and that’s it. Here are some of the most common reasons Americans pay taxes.
Government Jobs and Services
Federal taxes help pay for national things such as the president, the military, and congress. State taxes help pay for things such as governor and local roads. County and city taxes help pay for EMS, the police department, and schools.
Income Taxes
Withholdings are taken out of every employee’s paycheck. If you are a business owner or independent contractor and get paid in cash, you are expected to report those earnings to the IRS and pay a certain percentage of your wages as taxes. These taxes typically include medicare, social security, and unemployment.
Property Taxes
Are usually a percentage of tax taken from the current property value There can often be a property tax from the county and the city.
Sales Tax
Sales tax is tax put on all retail sales in any given area. Across the United States, the percentage of sales tax taken can vary. Sometimes items such as food or clothing can be exempt from sales tax in certain places.
Business Tax
This is the tax that any given business is expected to pay. The amount is variable to the size and profit of that business.
Car Registration Fees
When you purchase a vehicle you have to pay tax for the license plate and for the title of the car. If you move into a different state you will have to pay the same use tax for a new license plate and title in the new state. The idea is to prevent a resident from going outside of the state to buy a car and therefore avoid the sales tax. Moving is extremely expensive, and some people have the desire to move and are unable due to it being too expensive. This added expense when moving with a vehicle is another example of how our taxation system targets the poor and middle class.
Hidden Taxes
Along with the list above, there are plenty of other ways the government implements hidden taxes. Due to Covid-19, the United States saw a spike in “side hustles” and people working for themselves. Side hustles gave people an opportunity to pursue their passions such as making art, content, or jewelry and being able to sell them. Many people began making content because it was work you could do from the safety of your own home. A lot of people began flipping items they thrifted or selling their clothes or beauty items on second-hand selling apps. It seemed like it was a no-harm no foul situation. However, many people don’t know that these side hustles need to be reported to the Internal Revenue Service (IRS) and you must pay taxes on them. Many people don’t understand that any and all earnings you make are expected to be reported to the IRS. Even if you got paid in cash or under the table the IRS expects that you report every single dollar. And if you don’t and the IRS audits you, you could be in some hot water.
What came as a shock to many is how confusing doing taxes were on your own and just how much one could be taxed. When you work a standard 9-5 job for an employer in the United States your paycheck will show you where your tax deductions are going. Nowhere on that paystub, it informs you that your employer matched part of your deductions. Typically an employer will match whatever deduction is taken out of your paycheck for unemployment. Once one becomes a 1099 contractor, or you are your own boss. you are expected to make all those payments. So if you thought you were paying too much in taxes before, you could be paying double as an independent contractor. For a small business or a side hustle this can be detrimental. Side hustles can be extremely lucrative and often people are even becoming millionaires from them. For most, they are simply a way to make ends meet. But being required to pay double in taxes takes a large chunk from their bottom line. This is another way the government unfairly taxes the poor and middle class.
How the Rich Stay Rich
One way the rich don’t have to pay taxes is by how they are taxed. Warren Buffet, a well-known millionaire in the United States has been filmed explaining that his secretary pays more in taxes than he does. This is because most of his money is currently in stocks and he only pays on his sold stocks which is capital gains tax (20%) and his secretary is paying income taxes (approximately 37%). The way that the rich and elite make money is very different from how lower middle-class people make money. And, they are not taxed the same. Investments otherwise known as capital gains have a maximum tax of 20% whereas income tax can be anywhere between 10 and 37%. The super-rich are never paying an equal amount of taxes as the average Joe.
It makes no sense that people who make more money aren’t taxed more. The burden is falling on lower-middle-class people who are already struggling. And we often see celebrities or other rich people getting jail time for tax evasion. Some of the 1% think paying any taxes is unacceptable. Their way of life is drastically different from everyone else. They do not struggle to pay for groceries and often those who do evade taxes are doing so out of greed. Sometimes the 1% lifestyle can no longer be obtained. This is where we see the bulk of celebrities or the rich run into problems. Instead of adjusting their lifestyle, they begin to evade taxes and get themselves into debt to maintain the lifestyle they are accustomed to. It is simply poor money management. The poor shouldn’t have to pay more in taxes just to ensure the elite can afford their second yacht.
Final Thoughts
Taxes can be extremely complex and overwhelming. As we head into tax season you might be feeling the burden and overwhelm of having to do taxes and what that might mean for you and your family’s future. We understand this burden and hope we can spark change and hope. In Doctor Mitch’s book, A Taxing Problem: The Psychologist’s Prescription for a Just Tax System he easily breaks down the how and why our taxation system is targeting the poor and middle class unfairly. When reading this book you will be offered an all-encompassing perspective on the issues of our current tax system and what solutions can be put into place. Dr. Mitch offers his unique insight and how the United States can fairly tax all Americans more equally to create a more just and fair society.
One need only look to the actions of the new Republican majority in Congress. The first order of business for them was to defund the IRS. The last Congress and the Senate passed legislation designed to modernize the IRS infrastructure, enable the replacement of retiring IRS personnel, and to hire more auditors.
The ostensible rationale for the Republican majority was that the new funds were intended to result in the hounding of small business through more auditing of those returns.
The legislation passed in the last congress recognized that the uber rich underreport their income by about 20%, depriving the country of needed revenue that then must be made up on the backs of the middle class in taxation and on future generation because of the need to borrow. No wonder there is public support for the sentiment of viewing the IRS as an enemy.
The lack of fairness and justice in the ways in which we tax income gives rise to that perception. When people of color in this country experience policing of their communities, the call to “defund the police” was heard. Just as defunding the police is no solution to the problem of institutional racism in the criminal justice system, “defund the IRS” (the tax police) is no solution to the problem of the inherent unfairness in the way we pay for government and its services.
