Imagine a hockey game where every time you scored two goals one was taken from you (like a 50% tax rate) and given to your opponent! How hard would you work in that game? The Valley Voices column of December 9 is replete with ethical and economic errors, so for the moment I will use just one and let the reader consider that if the starting point is bad the rest of the column likely follows suit. The writer’s opening sentence labels the idea that lowering corporate taxes is a good thing as a fairy tale, so let’s evaluate this statement to see if the writer’s standard of value is human flourishing.
Why do you create a business? In order to live: to bring an idea that creates human values into reality to support and improve your life. You might have an idea that many people will value your ideas about food, housing, transportation, communication, health or entertainment, for example, so you set about creating a business to manifest your ideas. You set up a supply chain, production, marketing, sales, distribution and service - often these are just you in every role at first. You must set a price higher than your cost inputs so that you are creating net value, otherwise your business dies and no one’s life is supported. If you have enough customers who find your product is worth more to them than the money they pay you (price) then your business survives. The level of your profit is a pure function of how much value you are creating, as decided by the agreements between you and your customers. All such trade is win-win by its very definition, the most moral form of trade.
If you are able to create enough value to thrive, gradually you may hire others to divide the work and enable specialization and division of labour. You offer to pay your job candidates what you consider to be enough to attract the skilled people you want to hire. If they agree with your offer and are hired you are each making a profitable trade. Your pursuit of life goals creates job opportunities for others to bring their value creation ideas into reality to support their life goals.
I can see five things you can do with each dollar of profit earned by your business. First, you may opt to build a cash reserve to protect your business during the inevitable hard times. This cash is on deposit at a bank, where it is immediately put to work through lending to meet the life goals of others. Second, you may pay down business debt to lower the risk to your business and again the bank will immediately lend this out to others. Third, you may invest in growing your business, thus creating even more win-win trade. Fourth, you may invest in other value-creating businesses by acquiring all or part of them. Finally, you may pay a dividend to the business owner(s) and the owner (maybe just you) will then either save it, pay down debt, make other investments or spend it through trade with other value-creators. All these choices are both moral and productive.
Corporate tax is the forcible taking of value from you as the business owner (what is seen), your employees (less money available for payroll - unseen pay and hiring that never happens), your suppliers (unseen purchases that never happen) and your customers (higher prices than otherwise). Such takings necessarily discourage all business activity, investment, hiring and growth; punishing the life-supporting creation of human values through production and trade. If this were not true then ever-higher taxes would create rising prosperity, punishing success would lead to even greater success and the type of hockey game described above would be popular.
In a free society when you build great wealth it can only be through great value creation. Some businesses that have grown during the current pandemic have been rewarded for creating great value during a difficult time. They have provided the goods and services most wanted by us just when we want them and at a price we are eager to pay. How much worse would this time be for millions of us without the incredibly fast and affordable supply chain created by Amazon? Many businesses and lives have been damaged and destroyed by the irrational dictates of our central planners, dictates that prevent us from thinking for ourselves and supporting our own lives by creating human values. Other businesses have of course benefitted from these dictates, but they are not to be condemned - the dictators are responsible.
The lower the business tax rate the more human reasoning, value creation and productive achievement can be achieved. To the small degree any type of taxation is needed it is better placed on the consumption of values than on their creation. To maximize human flourishing the most moral and practical business tax rate is zero percent.
