William Thien

Income Taxes: Serial Killer of American Small Business

Posted on: February 9, 2013

This is a reprint of one of my essays published on November 5, 2010. It is one of my favorites and an important issue so I’m re-publishing it today.

Income Taxes: Serial Killer of American Small Business, Nov. 5, 2010

Workers in The United States and other established industrial countries tend to earn higher wages than in third world countries or the far east. It’s a fact. We all hear stories about large corporations moving their production lines to the far east and Central America and the low wages those workers are paid. We may have seen stories on the news about the appalling working conditions and long hours those workers endure. But is that really why American companies are moving production overseas? I believe there are other more subtle forces at work that unless we examine them over a period of time, we will not recognize them.

What is significant to us is that products can frequently be made overseas for much less than in America. This of course creates a price gap between goods made here in The U.S. and those made overseas. Some countries can even buy the raw materials from us and ship them overseas, fabricate a quality product, and then ship it back to us for less than we can produce it here because the wages they pay their workers are so much lower. Labor is often the largest part of the production cost equation. But as you shall see, there is something more subtle at work as well and it has nothing to do with American workers being paid a living wage.

What is the result of all of these forces, those obvious and the invisible? Industry, particularly small industry and business, that which employs the greatest number of Americans has suffered in The U.S. for the last thirty or forty years. What does small business have to do with what I describe? Small business and industry manufacture consumer goods, small ticket items. It may not seem like it, but small business and industry are the bread and butter of the economy and it is this market into which foreign manufacturers have made particularly substantial forays into our economy. One could view what is happening to small business and industry in The United States as a form of warfare, economic warfare, because it undermines our economy in such a strategically effective way that somehow it could not be by accident. But as you shall see, we have a saboteur in our midst which is of no foreign origin whatsoever, someone in an entirely deceptive set of threads for which we pay and supply, as you shall see — for which we pay and supply dearly.

When a consumer goes to the store, they are most often spending what is called “discretionary income.” They are on a budget and very “cost conscious.” They have particular needs and only so much money to spend. But they spend that money more often, weekly perhaps, and it is that flow of money into the economy that brings necessary economic sustenance to the entire country. Without it, a country such as ours which is based on industrial and agricultural production will eventually suffer hard times, some believe much worse than current conditions. Bread, as the saying goes, is the staff of life. So too then is small business, that which manufactures consumer goods, the staff of life to our economy.

As I’ve stated, low wages paid to overseas workers and appalling work environments overseas in juxtaposition to working conditions here and higher wages are not the only factors that have contributed to the deconstruction of industry in the United States. I believe our government has had a direct hand in it as well. Please read on.

When a consumer goes to the store with a number of purchases in mind, retailers like to have several items available at differing prices, or price points, to allow the consumer to make a purchasing decision. It’s part of the psychology of retail. The consumer doesn’t feel like they are getting something shoved down their throat because there is only one choice, and the retailer or store owner can offer a variety of items from inexpensive to expensive items with the hopes of taking in more income by selling what is more expensive. For the sake of this discussion you could call the difference in prices from low to high on the same type of product as a price spread or gap in price.
Prior to going to the store the consumer has to earn some money, though.

Enter the income tax. When income taxes increase as they have for the last sixty years (In 1952 a family of four paid less than 2% of their income in Federal Income Taxes) consumers are able to buy fewer products made here in The United States because, as I mentioned previously, products made in other countries can often be made for less, much less. U.S. income taxes then shrink or decrease the spread or the gap, the choices based on price of available products an American consumer can purchase.

Income taxes don’t just decrease purchasing power in The United States, income taxes hack at the consumer’s purchasing power as with the lopping stroke of a rusty axe. Today, some of us pay over twenty percent in income taxes. That is an eighteen percent decrease in purchasing power in comparison to the family in 1952 that paid only 2 percent of their income in taxes to the federal government. And when you add all of the social programs we pay into that are not classified as taxes but are deductions to your pay nevertheless, what is withdrawn from your pay can easily exceed forty percent for some before your paycheck is even in your hands. That forty percent is more often than not the difference in price between the products made in The. U.S. and those made overseas. In fact, that very fact is incorporated into the price structure of products made overseas. Products are priced at an amount equivalent to the average income tax rate less than those made in The United States. Products manufactured overseas are priced at a level which brings them in line with your real wages, that which is left after taxes and other deductions. Clever, isn’t it.

Taxpayers have been struck with such excessive taxation in The U.S. since the 1950′s on an increasing, sliding scale. Why? There were great excesses after World War II and nobody thought about the future. There was a melding of political ideals across the globe with some of them heavily socialist/communist which frequently remain today and are enormously expensive to maintain even though they have proven false in communist countries. And finally, people became busier with the woman leaving the house to go to work and they didn’t see it coming.

Now, strapped with high income taxes, on a heavy sliding scale for some, coupled with sales taxes that creep up every few years, real wages, or the net people take home for working the same amount of time and producing the same and frequently more, has been halved in many places. People are working into the middle of the week before they begin earning. Less and less is there any difference between what a person makes in wages in The U.S. in comparison to what a worker makes in the countries where there are such appalling work conditions. But it is not the industrialist or the small business person that is to blame, not the employee whether they be union or not.

It is our own government who frequently seems to pit the employee against the employer to redirect the focus away from the government’s desire to tax more and more. Our own government is working to break up industrial productivity simply to perpetuate its own existence. They understand the economics at work here. Yet, they let the employer and the employee work at each other as if they were enemies. Income taxes also create discord in our industrial economy. Income taxes are divisive. High income taxes are treacherous. A point could be made that high income taxes are treasonous because they undermine a country’s ability to perpetuate itself through its own industrial production and economic self-reliance.

So, the effect of such heavy taxation is to drive the American consumer down to the lower priced products since they have effectively less to spend. And where are the lower priced products often made? All too often it is overseas. Income and sales taxes actually force the consumer to purchase products that are manufactured overseas by hacking away at the choices they can afford. Therein, ladies and gentlemen, lies the saboteur, income taxes, the hacking, slashing serial killer of the blood spattered American Dream. With each week, with each paycheck comes another fall of the axe. “Kill! Kill! Kill!” The shadowy face growls.

If we want to make it possible for industry to flourish here, even just to function here in The U.S., we need to attack income and sales taxes with the goal of making it possible for Americans to buy American made.
Because our taxes are literally cutting us right out of the market.

Copyright © William Thien 2010

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2 Responses to "Income Taxes: Serial Killer of American Small Business"

Reblogged this on William Thien and commented:

We need to focus on cutting income taxes because it is income taxes for the reasons I describe here.

[…] It is my belief that the income tax is ruining the country’s small business climate as it has steadily increased over the last eighty years from under five percent for most to often now reaching into the thirtieth percentile. Since the income is taken from your weekly or periodic pay you do not have that discretionary income left (off it has gone to the government) to purchase small ticket items at the store which are made in the United States, where it often costs more to manufacture such items than Asia, for example, where the cost of labor is lower. Since you have less income due to the income tax you cannot afford “Made in America.” The gross effect is then that the income tax destroys American Industry. Small ticket items manufacturing is the bread and butter of American business as you purchase such items on a regular basis with receipt of your weekly pay, rather than a car or a house, for example. I’ve blogged on this in the past, click here to read the essay ==> Income Taxes: Serial Killer of American Small Business. […]

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