Look, I do not care what your political preferences are, but here are the cold, hard facts.
When politicians talk about raising taxes on corporations it sounds great, right? After all, those greedy, good-for-nothing corporations are raking up the profits, ruining the environment, and abusing their employees!
But, here is what really happens when the corporate tax rate is increased:
Firstly, most mega corporations have agreements in place that allow them to operate almost tax free. So they are not even affected by the tax increase.
For those who are, the first line of defense is to raise prices, reduce product sizes, or reduce product quality. It is usually a combination of all three.
If that does not work, they will move production to a different area, usually overseas. Now you have an empty building and unemployed neighbors.
Unless the employees have unionized, management will reduce or eliminate benefits to save money. Health insurance is the single largest fringe benefit expense so it is a prime target for cutbacks. Employees will either pay more of the premium or the employer will change to higher deductible plans to reduce the cost to the employer. Or, if the company is small enough, they may choose to not offer it at all.
When product quality goes down, demand tends to go down.
When product cost goes up, demand tends to go down.
When demand decreases, so does production.
Lower production means less employees are needed. This means your neighbors do not have as much spending money and may end up unemployed.
So, who is the winner in this scenario?
Well, probably the corporation, because it is not in the business of losing money. Its shareholders will not allow it, and its board is in place to keep that from happening.
But, the politician will also be the winner… at least for the half of the voters who thought higher taxes for corporations sounded like a great idea.
The big losers?
– the people who have had their hours and benefits reduced or eliminated
– the local governments who will now have to increase property taxes to make up for the closed factories
– the small corporations who may not have the options bigger corporations have to move production or increase prices
– the consumer who now pays more for less
Interesting fact: only 1% of US corporations have 500+ employees. This is the same in Canada and I would expect similar results worldwide. This means that most of the corporations affected by the tax increase are small businesses with B or C Corp status.