Profits are American

I've said it before and I'll say it again: business in America are here to make a profit.

No one goes into business hoping to just break even or worse yet, borrow government stimulus dollars just to make payroll. Most small business owners start out with a big dream to provide a product or service and make loads of money doing it! It's the American dream, right?

There's a lot of public outcry to "tax the rich", "tax the evil corporations" or to make them "pay their fair share". Before 1913, our federal government was fully funded through excises taxes apportioned throughout the United States (meaning there were no direct taxes punishing particular sets of people; to distribute taxes proportionally). Taxes were meant to be voluntary and people paid them when they purchased certain items or services. In 1909, Congress passed income taxes on corporations and just 4 years later, our personal income tax system was born.

Do you know how it was passed? Politicians promised that only the RICH would pay income taxes! At the time, several states in the Union, including Missouri & Georgia, had zero residents who qualified for the income tax.

So anyway, back to business taxation and profits. Businesses are not only taxed on income, but they're taxed on every single employee through a payroll tax. So when we hire someone, we must pay 7.65% on top of every dollar we pay them. That's an exclusive tax (tax on-top of the cost). Then, the employee also pays 7.65% of every dollar they earn - an inclusive tax because it's taken from the earnings, not added to it.

That additional 7.65% on top every dollar paid to an employee literally removes profit from the business owner's bottom line. Since we're all in business to make money, we must adjust the price of our goods and services to remain profitable every single time we have a tax increase.

I know I'm going in a few different directions here, but it's all so important!

Not only do businesses pay payroll taxes on their own employees and income tax on profit, when we purchase goods from another company (like chicken wings in my case), we are paying the payroll taxes and income taxes that the seller has calculated into the cost of their goods. These taxes are embedded into the cost of everything we purchase. And remember, because of payroll and income taxes, we don't even get to keep our whole paycheck! We're buying these things with after tax money and paying the taxes that are rolled into the product or service.

Okay, back to profit. Profit is not how much I sell a chicken wing for - I don't get to keep all that money! Profit is how much I keep after I pay for that chicken wing, the wing sauce, ranch dressing, the container, the wet nap, the napkins, the insurance on my establishment, drivers insurance, natural gas and electricity, cleaning products, cooking oil, uniforms, printer ink, employee pay and payroll taxes... and more. Profit margin is the difference between what I cumulatively pay and what I sell it for. For most industries, profit margins are slim. We're working hard each week to pay all the bills and hopefully save some money to pay forward towards expansions or replacement equipment.

Here's where we get back to "taxing corporations". In order to be successful and to continually grow and change, companies must make a profit. When we increase taxes on corporations (small and large), they must adjust costs in order to stay in business. Profit margin is a percentage, so if you sell a million dollars a year, your 5% profit margin is $50,000. If you're a $10,000,000 company, your profit margin is $500,000. So, the more we tax a business, the less they have to invest in growth and the more inclined they are to raise taxes or fire employees - or gosh forbid - leave the United States.

Here's a diagram listing profit margins for different industries.

Are you one of those people who claim insurance companies make "obscene profits"? Well, look at their profit margin! (It's 3.3%; hospitals make 3.6%) Insurance companies run at very low profit margins. Profits matter less than profit margin. The more money you generate at the very same profit margin will automatically result in higher profit dollars. Often times, the larger a company gets, the lower the profit margin.

Seriously, look at all the industries making more than 10% profit margin. Where's the outcry? Where's the screaming and taxing?

If nothing else, remember two things: (1) businesses are here to make a profit; (2) only people pay taxes. Raise taxes on businesses and it rolls downhill (or floats overseas).