Public corporations prepare financial statements. One of these statements is generally called an income statement or profit and loss statement.
Simply put, a company first reports revenues, then subtracts its expenses that created those revenues and then reports whats left as pretax profit.
From the pretax profit federal taxes are subtracted. What's left is called Income after government taxes.
This income is generally used for three or four things. One is to pay dividends, since the majority of shares in America are owned by pension funds, mutual funds and individuals, the dividends are paid to the American public. The second thing the money is often used for is to buy back company shares. When this happens the money is paid to selling shareholders who then deposit it in their bank, reinvest it or spend it. Thirdly the money is spent on capital expenditure; putting up plants and buying equipment. Whatever little is left is retained in the corporation in order to maintain more employment and stability for the company.
NOW THE GOVERNMENT COMES ALONG AND SAYS "WE WANT MORE TAXES". TAXES ARE AN EXPENSE LIKE ANY OTHER EXPENSE OF RUNNING A BUSINESS. THE IMMEDIATE REACTION OF THE COMPANY IS TO THINK ABOUT RAISING PRICES OR REDUCING EXPENSES TO OFFSET THE TAX INCREASE, THEREBY REDUCING CONSUMPTION.
THE NEXT THING THAT HAPPENS IS THAT THE MUTUAL FUNDS, THE PENSION FUNDS AND OTHER SHAREHOLDERS RECEIVE LESS, CAPITAL EXPENDITURES ARE REDUCED, EMPLOYMENT IS REDUCED, AND A TAX INCREASE GENERALLY DOES NOTHING BUT ATTEMPT TO TRANSFER MORE MONEY TO THE GOVERNMENT. THE GOVERNMENT CAN THEN HIRE MORE PEOPLE AND MAKE THEM MORE BEHOLDEN AND THEREFORE VOTE FOR THE PARTY THAT RAISED THE TAXES AND PRODUCED NON-GROWTH GOVERNMENT JOBS.
THIS IS CALLED A NEGATIVE CAPITAL FORMATION ENVIRONMENT. IT'S SOMEWHAT MORE COMPLICATED THAN THIS SIMPLISTIC EXPLANATION AND ALTHOUGH IT MAY MAKE THE FINANCIALLY UNEDUCATED FEEL THEY ARE GETTING A FAIR SHAKE, IN REALITY IT DOES THEM MORE HARM THAN GOOD.
Simply put, a company first reports revenues, then subtracts its expenses that created those revenues and then reports whats left as pretax profit.
From the pretax profit federal taxes are subtracted. What's left is called Income after government taxes.
This income is generally used for three or four things. One is to pay dividends, since the majority of shares in America are owned by pension funds, mutual funds and individuals, the dividends are paid to the American public. The second thing the money is often used for is to buy back company shares. When this happens the money is paid to selling shareholders who then deposit it in their bank, reinvest it or spend it. Thirdly the money is spent on capital expenditure; putting up plants and buying equipment. Whatever little is left is retained in the corporation in order to maintain more employment and stability for the company.
NOW THE GOVERNMENT COMES ALONG AND SAYS "WE WANT MORE TAXES". TAXES ARE AN EXPENSE LIKE ANY OTHER EXPENSE OF RUNNING A BUSINESS. THE IMMEDIATE REACTION OF THE COMPANY IS TO THINK ABOUT RAISING PRICES OR REDUCING EXPENSES TO OFFSET THE TAX INCREASE, THEREBY REDUCING CONSUMPTION.
THE NEXT THING THAT HAPPENS IS THAT THE MUTUAL FUNDS, THE PENSION FUNDS AND OTHER SHAREHOLDERS RECEIVE LESS, CAPITAL EXPENDITURES ARE REDUCED, EMPLOYMENT IS REDUCED, AND A TAX INCREASE GENERALLY DOES NOTHING BUT ATTEMPT TO TRANSFER MORE MONEY TO THE GOVERNMENT. THE GOVERNMENT CAN THEN HIRE MORE PEOPLE AND MAKE THEM MORE BEHOLDEN AND THEREFORE VOTE FOR THE PARTY THAT RAISED THE TAXES AND PRODUCED NON-GROWTH GOVERNMENT JOBS.
THIS IS CALLED A NEGATIVE CAPITAL FORMATION ENVIRONMENT. IT'S SOMEWHAT MORE COMPLICATED THAN THIS SIMPLISTIC EXPLANATION AND ALTHOUGH IT MAY MAKE THE FINANCIALLY UNEDUCATED FEEL THEY ARE GETTING A FAIR SHAKE, IN REALITY IT DOES THEM MORE HARM THAN GOOD.
