It’s always great to see the Republican President-Elect of the United States openly behaving like a Democrat. Democrats love taxes, and they love, even more, telling people they want to tax corporations or raise taxes on corporations. Now Donald Trump is doing it.
He tweeted this today:
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!
— Donald J. Trump (@realDonaldTrump) January 3, 2017
It is not arduous at all to break down. The MSRP of a 2017 Chevy Cruze is $16,975. Let’s assume for a moment; Trump’s wants to impose a 25% (he wants it to be big, remember) border tax on each vehicle. The tax likely wouldn’t be applied against the MSRP, but it doesn’t matter. The formula still works the same.
A 25% border tax on a Chevy Cruze comes to $4,243. Donald Trump is oblivious to the fact that Chevy is not going to eat this cost. They’re just going to pass it along to the consumer. That $16,975 car will now cost $20,000.
To break it down further, this from Americans For Tax Reform spells it out:
Corporations make money by selling things to people. If a corporation makes a profit of $1.00, and $0.40 of that must go to corporate income taxes, that “tax wedge” will be built into the price.
Let’s say a corporation wants to make $600 on a computer after taxes. It has to charge you $1000 for that computer, knowing it will have to pay $400 in taxes. You just paid the corporate income tax on that computer. All the corporation did was pass along the cost to you in the form of a more expensive computer. Families pay the corporate income tax.
In addition to the consumer having to pay, investors and shareholders also get the short end of the stick:
It goes without saying that seniors and shareholders can also be wage earners and consumers, but they also have their own contribution to paying the corporate income tax. We mentioned above how $0.60 on the dollar in corporate taxes comes out in the wash in the form of lower wages. The other $0.40 shows up in the form of lower returns on investment.
Corporations are owned by the millions of 401(k) owners, IRA owners, pension plans, and individual shareholders who buy and hold corporate stock. A majority of adults in the United States are part of this “shareholder majority.”
When corporations have an after-tax profit, they can do one of two things with it: they can return the profit directly to shareholders (a “dividend”). Or, they can retain the after-tax profit in the company, re-investing it to grow the business. When the business grows, the share price rises, and the investor gets to benefit later when he sells the shares (a “capital gain”). Either way, after-tax profits eventually make it back to the investor.
“After-tax” is the key term here. The corporate income tax results in after-tax profits being far lower than the pre-tax profits looked. Corporations also might engage in less-profitable activities in order to avoid paying the corporate income tax.
One would think a “genius” businessman like Trump can comprehend something so simple. This is not complicated, advanced math.
Trump fans cheer this on, foolishly thinking it will “bring back the jobs.” All it does is hit them in the wallet.