This article is part of a series intended to support the development and growth of small business. As a small business built to serve others like us, we believe small businesses are fundamental to a healthy market and democratic society.

In the previous article “Regaining Control over the Means of Production”, I discussed why small businesses are critical to a prosperous society and healthy democracy, because they ensure the means of production remain widely distributed in the hands of as many people as possible. This creates innovation, critical competition that improves quality of services and products, and it provides good paying employment options to ensure everyone prospers from a booming economy, rather than citizens being forced to compete for the lowest wage. Most importantly it prevents the dangerous concentration of power when only a few oligarchs own the means of production.

Taxes: the Best Tool to Prevent Concentration of Power

When taxes are implemented fairly they are vital for maintaining critical infrastructure, justice, an educated and qualified workforce and in general a healthy market for businesses to thrive. 

But it’s understandable why small business owners hate taxes. With competition so fierce, taxes eat into already thin margins and are particularly harder to bear when a business is smallest and still at its most vulnerable. It’s precisely for this reason that taxes are important, when implemented correctly to prevent a concentration of power, taxes help protect and maintain a fair and free market that allows small businesses to thrive. 

How is that possible? First we need to understand that the current tax and regulatory framework is written by and for corporations, intentionally designed to punish small businesses and give corporations an advantage. Many regulations that are sold with the best intentions (e.g. to protect the environment or worker’s rights), are implemented in a way that small businesses are excluded from the competition because compliance becomes too burdensome at smaller scales. And tax laws are designed to be complicated for small businesses and allow large corporations to magically make billions of dollars of profit disappear into the pockets of shareholders and somehow both the shareholders and the corporation avoid paying taxes altogether [itep.org]. 

Let’s not mince words, this is pure corruption. And taxes are the most important tool societies have to combat this corruption and consolidation of power. When wealth is concentrated in the hands of a few, so too is the power to manipulate the market, gain control over the means of production and corrupt democracy to institutionalize that power. We have reached a point where we cannot accurately describe the American system as democracy anymore [cambridge.org]. An aggressive and progressive tax rate on all income and wealth when it reaches a dangerous level, is the only means of preserving democracy and a fair market. 

Keeping a Reasonable Balance

A practical example, if you do not want a society where one group of citizens have more than 10x more power than their fellow citizens (seems reasonable), and the average wage is $50,000, then logically income over $500,000 should be taxed at 90+%. This prevents an accumulation of power that history shows will always end in monopoly and oligarchy.

This is not a new idea, it’s the primary reason the top tax rate was between 70-92% from the 1930s to 1980s [wikepedia.org]. The purpose of this taxation is not primarily intended to generate revenue, but precisely to protect a more egalitarian society and prevent small groups of individuals from accumulating too much wealth and power. Because in a just and healthy society there will be few people who reach this high level and the majority of taxes will be paid by a thriving middle class that can afford the taxes that fund the services and infrastructure they benefit from and guarantee a stable democracy.

Won’t High Taxes Destroy Motivation?

You may be thinking, “but if taxes are so high, people will not have any motivation to innovate and create businesses!” Do you really think that’s true? Let’s go back to first principles and reason together. 

Most small business owners do not earn, and have no delusion of ever earning, more than $500,000/yr in income. And yet they are passionate about their business because, let’s be honest, even a quarter of that is a lot of money! Plus beyond money, business owners have pride in what they do, what they produce, their role in the community, and the independence their business affords. And look at an average worker making $50,000 per year, they still wake up every morning to labor for someone else in order to survive and support a family, with only a vague promise of a small raise every year that likely doesn’t even keep up with inflation. Do they need more than $500,000/yr to be motivated? And we must recognize that many people like scientists, teachers, musicians and artists are motivated by curiosity to explore, learn, teach, create, or a passion to help others. And finally, in the rare case of some poor soul whose only motivation in life is to be “rich”, if the high taxes make them lose their sole motivation to grow their business that’s not a problem for the economy—there are millions of other people that would gladly fill the gap in the market demand for the prospect of earning that much! 

If we evaluate this claim, we see that it is just thin propaganda, actually an insult to workers and small business owners everywhere, to claim that getting “rich beyond imagination” is the only motivation for growing a business.

If you need more proof you, you can look at other nations that have strong economies built on progressive tax systems that do not stifle motivation and innovation. And the same is true historicdally in the United States.The Great Depression in the 30s was precipitated by dramatically reducing the highest marginal tax rates which created an extreme wealth and power inequality. After the crash, highest marginal tax rates were restored to and this led to the post-WWII economic boom (1950s–60s). When the top marginal tax rate in the U.S. was 91%, business innovation flourished and middle-class wealth expanded [taxpolicycenter.org]. 

So why are the current political priorities and tax code in direct conflict with the data? Precisely because the current tax code is written by and for billionaires who have corrupted democracy. And they are able to do that, because the accumulation of wealth and power go hand in hand.

Corporations Are our Direct Competitors

Corporations and small businesses are direct competitors. Every law that favors corporations and billionaires is an attack on small business and working class Americans. As small businesses owners, farmers, artisans and entrepreneurs, we need to begin asking ourselves whether the blank check we’ve given to anything labeled as “free market” or “capitalism” is actually serving small business owners or corporations. 

Are lobby groups like the Chamber of Commerce or politicians (from both parties) who allow billionaires and corporations to buy “access” to influence their legislative priorities, really creating a tax structure and regulations that help small businesses and average working citizens or corporations and billionaires? Because our interests are not aligned.

If we as small business owners do not organize to protect our interests the current trajectory will destroy the free market, and create monopolies run by a small oligarchy. This is self destructive to a nation, a free people, and the free market itself. As small business owners, we need to understand that this is dangerous to our livelihood, our businesses, our communities, and our very freedom.

What’s Next

In the next article we’ll dissect the origin story of Capitalism and see if our popular conceptions are accurate. We’ll explore how Capitalism differs from basic concepts like “markets” and “commerce”, which have existed for thousands of years as the basis of healthy economies and societies. We’ll discuss how unregulated Capitalism is creating the current social, economic, environmental and political crisis we are now witnessing. 

In the meantime, we’re here to support small businesses. If you have a new idea or want to grow your existing business, we offer exceptional quality services for every budget, and can help you with strategy, marketing, branding, website, and more. Schedule a free brainstorming consultation to explore ideas.