The approximately 18 million businesses in the United States buy materials and services, add value through manufacturing and services involving time and place. Part of the value added in both physical products and services becomes cost and expenses while the remaining dollars drop to the bottom line as profit.
A company that does not produce profit perennially is rambling toward liquidation (Chapter 7) or reorganization (Chapter 11). There are extreme cases with outcomes such as abandonment of assets and liabilities allowing government and creditors to figure out how the meager assets might have some market value.
By comparison, government depends on taxes (mainly) as revenue. In the current fiscal year, taxes have amounted to more than $3 trillion while spending has accrued more than $4 trillion. The difference in these two amounts is aptly called, ‘current budget deficit’ and now stands at $672 billion. This revenue/spending cycle has gone on for years so that currently our national debt is $20.5 trillion. The only way out of this dilemma is to increase taxes, reduce spending or both; duh.
Corporations and even small businesses put together an annual business plan and try to follow up on that plan and show a profit at year-end. Government however just keeps spending, increasing the legal debt limit taking vacations, junkets and holding town halls as a smoke screen for their constituents to think all is well. Governments have other sources of revenues such as post office fees, import tariffs, fines and fees and income from other government enterprises like Amtrak, National Parks etc.
The current GOP tax code revision, the first since 1986, features adjustments for middle class workers and substantial tax rate reductions for corporations. Tax cuts for workers reduces their tax liabilities creating increased disposable income but will not increase wages nor will it create new jobs. That’s the purpose of corporate tax cuts to bring home corporate funds, called capital repatriation amounting to many trillions of dollars and to encourage more investment for domestic factories that create jobs.
Liberal progressives think that money in the custody of corporations is used for salaries, residential mansions, summer homes and yachts. Some of this money may be used for these purposes but mostly it is used for investment in expansion that creates new jobs. Thus, employment expands along with increased wages; this concept is simply economics 101.
Charles Schumer, (D-NY) who has never signed a payroll check on the front side had special words of criticism and disgust that he had stored up for use during the debate and passing of the GOP senate tax bill. Charles loves the lens of photographers and the sound of his own loquacious voice. He doesn’t understand economics but he understands that while the war on women was faux pas all these years, the war on Republicans and their policies is in full swing.
The developing GOP tax plan will probably eliminate deductions for state and local taxes (SALT); this will hurt residents of states with high state and local taxes such as California with one of the highest state and local tax rates of 13.3%. Something that we should all recognize is that you and I as consumers pay all the taxes; yes all the taxes.
Here’s how: John Fixemup works at a Ford Motor factory making $52,000 a year. After taking authorized deductions, John pays income taxes of, say, $6,000. During the year John bought an F-150 pickup for $38,000 from the local Ford dealer. Ford Motor and the local Ford dealer pay taxes on profits after costs and taxes. All taxes accumulated by the dealer, by Ford Motor and by all suppliers who collected taxes for raw materials, payroll taxes, logistics (rail, truck, marine, air), SALT, tariffs and all other costs are included in the $38,000 cost of the pickup. Corporations simply collect taxes from consumers and pass the funds along to Uncle Sam and other taxing authorities.
In summary, growth of GDP (Gross Domestic Product) for the past decade has averaged less than 2% and is currently at 3.3% and totals $19.5 trillion. GDP growth is the wellspring of job increases, more disposable income and overall economic improvement nationwide and worldwide. Evidence is growing that the GOP tax plan will achieve these results.