by Mitch Kokai
Senior Political Analyst, John Locke Foundation
… American businesses are critical to the tax collection system at every level of government—federal, state, and local. Businesses either pay or remit more than 93 percent of all the taxes collected by governments in the U.S. Without businesses as their taxpayers and tax collectors, American governments would not have the resources to provide even the most basic services.
In 2017, Organisation for Economic Co-operation and Development (OECD) economist Anna Milanez measured the amount of taxes that businesses in 24 countries contributed to the overall tax collection system. The U.S. was found to be one of the most “business dependent” tax systems in the industrialized world.
There are two ways that businesses contribute to government coffers: taxes they pay directly (their legal tax liability) and taxes they collect and pay on behalf of others (their legal tax remittance liability). …
… As significant as is the direct fiscal contribution of American businesses, they play an even larger role for governments by collecting taxes and remitting them on behalf of others. The OECD study identified three main categories of remitted taxes: withholding taxes on labor and capital income; the employee-share of Social Security taxes; and, sales or value-added taxes (VATs).
By far, the largest of these responsibilities is withholding and remitting the income taxes that wage earners owe on their paychecks. Few, if any, salaried or hourly workers withhold money from their own paycheck and send it to the Internal Revenue Service (IRS) every two weeks. The government has placed this routine task on employers to ensure that there is a steady stream of tax payments in the government’s coffers to pay its bills.