If companies don’t make a profit they go bankrupt, fire all of their employees, and harm their creditors and investors. Taxes reduce profits, just like any other cost of doing business. All companies try to reduce costs, including taxes, just as do all rational persons. ExxonMobil Corporation’s profit margin for the first quarter of 2012 was 7.62 percent. That means for every $100 invested in their business, their profit was only$7.62. Over the past five years ExxonMobil’s profit margin has varied from 5.31 percent to 10.77 percent.[i] Despite being the brunt of impassioned attacks for its obscene profits, the company reportedly earns a miniscule amount on each gallon of gasoline sold in the U.S.[ii] Compare these profit rates with ExxonMobil’s U. S. tax rate—the same as for all U.S. corporations—of 38 percent for the first $18.3 million and then dropping down to 35 percent for everything above that, but actually amounting to an effective rate of 40%.[iii] That means ExxonMobil’s profits are reduced, because its costs are increased, by a 40 percent tax rate.
What benefit do we get from ExxonMobil and similar oil companies making a profit and staying in business? Every scrap of food you eat, every thread of clothing you wear, was—ultimately—delivered to a store by a truck using petroleum based fuel.[iv] We survive day to day thanks to oil companies and the after-tax profits they earn.
Is it evil, unfair, or uncivil, for companies to seek to avoid paying taxes? Is it evil, unfair, or uncivil for companies, or individuals, to seek to lower their costs? It is of course criminal for an individual to seek to reduce his cost of living by stealing clothes and food from the store rather than paying for it, just as it is criminal for an individual or company to file fraudulent tax returns. But is seeking to lower your cost of living by buying your clothes at Wal-Mart or Costco instead of Saks Fifth Avenue somehow immoral? Is it wrong for individuals or companies to seek to lower their cost by investing in ways that legally minimizes their tax burden?
This desire to reduce taxes plays a major role in U.S. politics. With 47 percent of households not paying any income taxes, it is in their strong self-interest to vote Democratic so that they will continue to enjoy a one-hundred percent avoidance of income taxes. What is startling, however, is that they make anguished claims of unfairness when others take political steps to avoid having their highest income tax rate increased from 35% to 39.6%.[v] Many voters in both parties are primarily motivated to avoid taxes, Democrats by electing those who will permit them to pay no income tax, and Republicans voting to minimize the ever-increasing federal tax burden.
In a free-market economy, how do sellers determine how much to charge for the goods and services they sell? They price as high as they can to maximize their profits. Those that manage to obtain higher profits succeed, attract more investment, hire more employees and grow. Those that fail to profit disappear. How do governments determine how much to tax? Unfortunately the answer is the same—as much as they possibly can. While raising prices in a competitive market is limited by competitors—Wal-Mart affects food prices for all sellers—governments face no competition. The federal government has proven over and over that it will tax everything it can, as much as it can. The only limit is the tolerance of voters. The government will take as much of your money as you will let it. That is the iron law of taxation.
To claim that there is some moral duty to pay more taxes to the government is like arguing victims have a moral duty to provide more blood to a vampire.
[ii] “During the fourth quarter of 2011, ExxonMobil earned about one-third of a cent for every gallon of gasoline and other products we refined and sold in the United States. Compare that to the 30 to 60 cents per gallon collected by the federal and state governments in gasoline taxes.” http://www.exxonmobilperspectives.com/2012/01/31/the-facts-behind-exxonmobils-earnings/
[iii] www.kpmg.com/global/en/whatwedo/tax/tax-tools-and-resources//pages/corporate-tax-rates-table.aspx. KPMG notes that the real rate is 40 percent because an average state tax rate of 1% to 12% must be added to the 35%.
[iv] Admittedly there may be some electric powered trucks deriving their power from coal, nuclear and again, petroleum products.