State taxes, Workers and Companies.
◇ First of all what people need to understand is the fact that the state does not create wealth, it can only distribute it.
However the state is also like anyone or any company it has incomes and expenses.
◇ The main income for the state is made by Taxing companies, workers, banks or anything that can be taxed, At the same time the state tries not to overtax to avoid affecting the growth of the economy.
◇ The state has therefore a leverage in his hands that allows it to create a calculated balance between taxation, spendings, and economic growth where growth in return can allow it by using taxation to increase its incomes (we will detail this later).
◇ let's imagine you are a hard worker, who is interested in advancing his company or his country and to make money for himself and his family.
You work as much as you can, but at the end of the year your recieve your "nice" income tax.
◇ This income tax is usualy relatif to the number of hours you have worked during the year.
So a very hard worker will have to pay a very important income taxes.
◇ So logicaly the hard worker will naturaly be demotivated and will find that his hard work is simply stolen by the state to probably be given to somebody who do not deserve it.
This category of people tend to experience a natural and justified feeling of frustration.
◇ So obviously one of the solutions to push people to wok or to work more is to lower the income taxes. however from a state point of vue this represents a loss of revenues and that is why the state find itself in a difficult situation where in one hand it can lower its own revenues by lowering income taxes and avoid peoples frustration or on the other hand increase its own revenues and have to pay more to manage peoples frustration (...)
* This simplified exemple will not take into account that the state could be a potential employer as well.
* This simplified exemple will not take into account people "not fit" for the portiential job needed by the companies..
◇ In this game lets say that the state is paying huge amount of money in welfare to people who could be but are not hired by companies.
In this game we have people who would like to work but do not find companies to hire them.
On the other hand we have Companies in need of workers who do not want to hire because of financial burdens.
Finaly we have the state imposing taxes on companies because taxes are an important income for the state.
◇ In Conclusion, one of the main solutions that has been proposed by some countries is to lower the state taxes imposed on Comapnies in order to incentivise them to hire workers.
The more workers the company will hire the less taxes it will have to pay.
In this scenario the state is lowering its own revenues but at the same time it lowers the huge welfare burden and also it enhances a more functional and healthier society where more people work and feel better integrated and in return paying taxes.
◇ Previously we explained the importance of the existence of companies and the taxes they provide as a revenu for the state.
So logicaly the more "healthy" comapnies a country has the more the state can potentialy gather taxes.
So logicaly the more companies a country has the less taxes on each company the state needs to impose in order to make state incomes.
◇ The importance for the state to help individuals create companies and enterprises is therefore very obvious .
In order to do that some countries found a simple solution, they will teach regular people how to create a company and once it is done the state will not impose on those new companies any taxe during a certain period of time.
Usualy this period of time goes fomr one to three years.
◇ The state could act like a farmer helper, it could help saw the seeds that can grow as companies.
If the "plant" grows and gives fruits the state can in return benefit from the existence of those new companies.
In this scenario we can imagine that not all new created comapnies will succeede in growing and giving fruits, however the more comampanies are started (STARTUPS) the more likely some of them will succede in this experiment.
◇ In the previous paragraphe we explained why entrepreneurship is important for some states .
The creation of companies is an important process for those states, however this process has some drawbacks, the main one of them is time it can take before fruitful companies can appear.
Like in agriculture, from the seed sawing to obtaining fruits it can take a long time and a lot of hard work.
Another drawback is the maintenance of the plants, like trying to prevent sickenesses that can affect them, for a company for instance it could seen as having to deal with unlawful competition.
◇ The solution that has been adopted by some countries(as a complement to enterprise creation), is facilitating the implantation or relocation of foreign existing companies in the territory.
This relocation of companies can be seen as planting an entire tree or plants in the territory instead of seeds that would take way more time to grow and give the desired fruits.
◇ In order to help or constraint those foreign commpanies to relocate in the country's territory many solutions can bee applied:
the first one is done by imposing tariffs on the products of the foreign companies, when a foreign company wants to sell its products in the country this company has to pay taxes.
The more taxes applied on its products the less competitf those products become and the less the company can sell them on the territory.
That is called protectionim basicaly the country protects its products from competition by imposing taxes on foreign products.
The state can on the other hand tell the foreign companies to relocate its production and manufacture to the country's territory in exchange of tariff removal.
◇ Another solution some countries have found, to help the foreign companies to relocate is done by providing some assitance during the process whether we are talking about money or by the temporar allocation of human ressources like state employees or also allowing those companies to invest in states funds they otherwise would not have access to.
◇ The state can also offer specific visas (investment) accomodation or advantages for those companies without entering into the details specific to eatch country.