Forget the populist rhetoric – we all pay for big government

Taxes levied on business tend to find their way to consumers, workers and anyone with a 401(k). In other words, you will be the one paying taxes that are supposed to hit Wall Street, says Carrie Lukas, vice president for policy and economics at the Independent Women's Forum.

In March, the Congressional Budget Office (CBO) provided a helpful analysis of this dynamic when evaluating a proposed tax on banks with assets in excess of $50 billion. The CBO revealed that big banks alone would not bear the burden of the tax. The cost of the proposed fee would ultimately be borne to varying degrees by an institution's customers, employees and investors.

For example:

  • Customers would pay the tax through higher borrowing rates and other fees.

  • Bank employees might see their compensation fall.

  • The fee would probably lower the total supply of credit in the financial system to a slight degree.

    Less credit for small businesses will make it harder for those businesses to grow and expand, and – most importantly given our near double digit unemployment rate – to hire workers.

    The CBO report reminds us that anytime government levies a tax, it takes money out of the private sector. Taxes on corporations never just hit some boogeyman called "big business." Businesses are ultimately people: customers, employees and investors. We end up paying those business taxes, even when they are officially directed at unpopular entities from Wall Street to oil companies. An example is the "taxes on millionaires" – a policy being considered in many states and localities facing budget gaps, says Lukas:

  • Certainly, some millionaires will pay higher taxes; however, that means they'll have less to spend on goods and services and less to invest, which hurts businesses, their employees and ultimately all of us.

  • And millionaires can relocate; when taxes rise in one city or state, many of these highly mobile individuals will leave – taking their money and consumer power – in favour of a lower-tax jurisdiction.

    Source: Carrie Lukas, Forget the Populist Rhetoric – We All Pay for Big Government,, June 14, 2010.

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    First published by the National Center for Policy Analysis, United States

    FMF Policy Bulletin/ 22 June 2010
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