Obama's Trickle Down Tax Plan: Let them eat potato chips

Obama's rationale for higher taxes: It's all about fairness. Corporations like Exxon made billions under Bush, now we're taking it all back and giving it to the middle class. When we spread the wealth around, everyone gets a little ahead.

Let's say I run FATCORP, which sells potato chips for $2 per bag. Let's say that taxable income each bag (after tax deductions) is $1. Currently, FATCORP would pay 35 cents in federal tax per bag. So FATCORP has a net profit of 65 cents per bag.

Under Obama, the federal tax per bag goes to 39.6 cents per bag. Now FATCORP pays 39.6 cents per bag of chips, for a net profit of 60.4 cents. All of the sudden, FATCORPs net profits are down 7.1%. FATCORP must now raise the price of potato chips, or else face the wrath of its shareholders. To get the same 65 cents of net profit per potato chip bag, FATCORP now must sell potato chips for $2.08 a bag.

Here's the problem: everyone eats potato chips, but the poor eat FATCORP's potato chips in far greater numbers. But it doesn't stop at 8 cents more per potato chip bag. It's a few more pennies for shoes, a few more for gas, and a few more cents for arugula at the Whole Foods Market. (I threw the last one in there because Obama himself complains about that.) By taxing the rich, who can indeed afford to pay it, you still ultimately end up taxing the poor, who arguably can least afford to pay it.

Of course, Obama would argue that corporations would choose to stay competitive and keep their prices the same. What's FATCORP to do if it feels no one will buy chips above $2? Sure, you can lower the costs by 7% to maintain the same 65 cent profit. What's the most expensive cost for FATCORP and almost all corporations? It's not the potatoes. FATCORP's employees, specifically their salaries, benefits, and healthcare, are the largest area of expense. FATCORP can freeze hiring (no new jobs), lay off workers, or reduce benefits. If you think lowering the CEO's salary would make a dent, think again....you could cut the CEO, CFO, and COO pay to minimum wage, and it won't get you even close to the 7% that Obama levied on FATCORP. In mature businesses like FATCORP, there isn't much more efficiency left to wring out of the system. Employees will usually feel the brunt of cost cutting first.

In summary, when tax rates increase on large corporations, they must raise prices, or lower costs. Raising corporate prices, especially on food, hurts consumers from EVERY walk of life, and usually hurts the poor the most. Lowering corporate costs hurts the middle class and lower class employees with fewer new hires, lower benefits, or worse, layoffs. I don't see how taxing big businesses more helps anyone in the long run. I agree with Senator Obama that the upper class will be fine no matter what. That's true...it's everyone else that I worry about. And for the 95% of us under the Obama tax cut, remember, that money doesn't come for free. You'll be paying for it every time you buy FATCORP potato chips, or anything else made by a corporation...which is basically everything.

Senator Obama, I will concede that wealth does not always trickle down perfectly, but I guarantee you that higher taxes always do.