Union Leaders Always Talk about Getting Higher Wages at the Expense of Profits but That Is Impossible because Corporate Profits Are Around 6% of National Income after Taxes

Union leaders always talk about getting higher wages at the expense of profits. That is impossible: profits simply aren't big enough. About 80 percent of the total national income of the United States currently goes to pay the wages, salaries, and fringe benefits of workers. More than half of the rest goes to pay rent and interest on loans. Corporate profits--which is what union leaders always point to--total less than 10 percent of national income. And that is before taxes. After taxes, corporate profits are something like 6 percent of the national income. That hardly provides much leeway to finance higher wages, even if all profits were absorbed. And that would kill the goose that lays the golden eggs. The small margin of profit provides the incentive for investment in factories and machines, and for developing new products and methods. This investment, these innovations, have, over the years, raised the productivity of the worker and provided the wherewithal for higher and higher wages.

--Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (San Diego: Harcourt Brace and Company, 1990), 234.

Corporate Income Tax Is a Hidden Tax That the Public Pays in the Prices It Pays for Goods and Services; Personal Tax Rates Are Highly Graduated on Paper but It's Pure Window Dressing

The personal income tax is sadly in need of reform. It professes to adjust the tax to "ability to pay," to tax the rich more heavily and the poor less heavily and to allow for each individual's special circumstances. It does no such thing. Tax rates are highly graduated on paper, rising from 14 to 70 percent. But the law is riddled with so many loopholes, so many special privileges, that the high rates are almost pure window dressing. A low flat rate--less than 20 percent--on all income above personal exemptions with no deductions except for strict occupational expenses would yield more revenue than the present unwieldy structure. Taxpayers would be better off--because they would be spared the costs of sheltering income from taxes; the economy would be better off--because tax considerations would play a smaller role in the allocation of resources. The only losers would be lawyers, accountants, civil servants, and legislators--who would have to turn to more productive activities than filling in tax forms, devising tax loopholes, and trying to close them.

The corporate income tax, too, is highly defective. It is a hidden tax that the public pays in the prices it pays for goods and services without realizing it. It constitutes double taxation of corporate income--once to the corporation, once to the stockholder when the income is distributed. It penalizes capital investment and thereby hinders growth in productivity. It should be abolished.

--Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (San Diego: Harcourt Brace and Company, 1990), 306.