This is a reposting of an editorial I wrote for the LPVA newsletter in 2003, which is timely again as tax season approaches and which someone has been trying really hard to find for some reason. I hate to disappoint anyone who tried to google this essay in a half dozen different forms. So, here’s an old but goody.
Who Paid the Baker’s Taxes?
By Don Tabor
It certainly wasn’t the baker, but then nobody directly pays their own taxes anyway. Our entire scheme of Federal, State and Local income taxes and payroll (FICA) taxes exists solely to conceal from the voter the truth about who really pays the taxes. So, who pays the baker’s taxes?
Well, where does the loaf of bread he sells come from? A farmer grew and harvested wheat for sale to the miller. The farmer paid income taxes based on his profit from the sale and property tax on his farm and equipment. Those taxes were, from his point of view, just another cost of doing business in the course of earning his living, just like fuel for his tractor or wages for employees. Since every other farmer had roughly the same expenses and taxes, the price they charge the miller must cover their expenses and taxes, plus their actual disposable income. Otherwise, there would be no point in growing wheat. All of these costs and taxes were passed on to the miller, hidden in the price of wheat.
Likewise, when the miller sold the flour ground from the wheat to the baker, his taxes, plus the income and FICA taxes he withheld from his employees, plus the farmer’s taxes, were all passed on to the baker. The baker then sells his bread made from the flour, carrying with it his own taxes plus those of his employees, plus all those previous hidden taxes from the farmer, miller and their employees, hidden in the price of that loaf of bread. The buyer and his family eat the bread, and, having done so, cannot sell it to anyone else and pass the taxes along, as the baker and everyone else before had done.
So, it is the consumer who paid the baker’s taxes, along with the farmer’s taxes, the miller’s taxes and the taxes they withheld from all of their employees. From bread to automobiles to brain surgery, the price of everything we buy carries in it the hidden taxes of everyone who contributed to the production of that product or service to the tune of, on average, forty cents out of every dollar we spend. Our entire complex, pervasive and expensive tax code is, in reality, a scheme to draft businesses and individuals as unpaid and unknowing tax collectors to gather a hidden sales tax, mostly from the middle class, and to keep the voters from realizing who really pays those high taxes.
There is no way around this central reality that all income and business taxes are a deception and that all taxes are eventually paid by the consumer, hidden in the price of goods and services. It doesn’t matter what tax rate is applied to which tax bracket, or what deductions you receive. These devices only change the degree to which you are a tax collector, but the tax you ultimately pay depends solely on what you spend.
Paying this consumption tax is unavoidable, but the illusion of income based taxing does a great deal of harm. First, it distorts our economic decisions. Goods and services that are labor intensive, like automobiles and health care, are artificially more expensive than necessary, while raw materials and natural resources are under priced, leading to over consumption and waste. But even worse, hidden taxes distort the political process, encouraging government overspending by politicians who exploit the mistaken belief of many voters that government spending can be paid for solely by taxing corporations or the “rich.” Voters might well choose differently were they aware that government spending is ultimately paid for by everyone, through an invisible sales tax.