How ridiculously simple. Let's take a real practical look and cover the things you didn't.
First, let's use Bob and his company 'A'. A is a massive producer of rubber gaskets. For simplicity sake, let's say it costs 'A' 2c in raw materials for a pack of 5 gaskets and 'A' manufacturers 100 million gaskets a year. In raw materials alone that bill comes out to $2m.
No big deal, though, since we're selling those 5-packs for a dollar each to retail stores. That 2m seems like NOTHING when compared to the 100m we just made, right?
Except, that 100m is taxable income for the company. What's the corporate tax rate for a company with 98m in taxable profit? 35% is the answer. So we lost 35m right off the bat to taxes on top of the 2m in raw materials. That's cool, though, because 'A' still has a cool 63m in gross. What's next? Oh, state taxes? Well we set up in Delaware - one of the lowest in the country for tax rates on businesses - and it's a cool 8.7%. Let's go ahead and round that up to 9 for simplicity sake. Another 9m gone.
So, in corporate taxes and raw materials alone, 'A' has gone from 100m to 54m.
'A' has a few locations around the country - let's say 3. 1 production plant and 2 customer service offices. 'A' has to pay property taxes on all 3 of them. Let's just call the property taxes on the 3 buildings 1m a year with the largest chunk being the production plant. We're down to 53m.
What about the cost of doing business? We have to buy stationary, staples, mandatory random repairs and replacements of things like desks and computers, as well as pay the utilities in all 3 buildings. Let's also call that a cool mil (though I'm probably short changing significantly and this will vary year to year). 52m.
'A' proudly employs 100 people. We're not that big but big enough. That includes customer service reps to answer angry phone calls, secretaries to handle the day-to-day, a couple of lawyers to handle law suits and audits, a couple of engineers to look over the plant and make sure things run smoothly, and the various other positions I can't think to list. On average, they're taking 75k a year - each. Remember, lawyers are expensive and so are engineers so they're boosting the pile. 100 workers at 75k each comes out to another 7.5m. This time we'll round down to 7m since we rounded up before. Now we're at 45m.
BUT WAIT! We have to provide healthcare to our employees and pay for most of it. All my google searches have shown me it's about 9.5k per employee per year on average. That comes up to 950k, let's call it a mil. 44m. We've also got to pay the payroll taxes which will vary from 10-15% (from all I've found) of our total expense on payroll. That's about another million and we're down to 43m.
Now let's say that once a month we find ourselves in a bit of legal trouble because some jackass didn't know what he was doing and hurt himself working on an engine of some sort and blamed it on gasket failure. We settle all of those cases out of court for an average of 500k each (in payments and additional legal fees). That's another 6m gone and we're at 37m.
The company also offers a 401k plan for all of its employees and it puts in a pretty standard 5% of their salaries a year while matching their additional contributions by 100%. Once again, let's round up to a million or so. 36m.
So, with just the mandatory minimum expenses paid, we're at 36m from 100m. That includes NO expansion, NO company sponsored events, NO company owned vehicles... nothing special at all. 'A' is the most basic of basic companies in the world. Bob now has 36m to play with. How much does he pay himself and how much does he invest in the company and/or the company's stocks?
Well, judging by how Bob doesn't do any company events or anything we're going to call him a greedy little bastard. Greedy, sure, but also not an idiot. He's going to make sure that his little cash cow keeps feeding him every year for the rest of his life and hopefully the lives of his children. He puts a quarter of it into a company savings account every year in case of emergencies (that we didn't see this year) as well as a regular increase in pay to his employees (which will also cause an increase in his payroll taxes, etc.). He puts another quarter of it into the various investment accounts he has set up for the company. The remaining 50% he takes for himself - that bastard - and pulled in a salary of 18m. Score!
That's another 2m paid in payroll tax - but from the company's money (that bastard!). Bob now has to pay his own income taxes, bummer. So, for the fed he's looking at 110k + 35% of the excess over ~350k. That's about 6.5m in federal income taxes. Fortunately for Bob, he lives in Virginia which has one of the lowest income tax rates for people of extreme wealth - a mere 6% - which comes out to another million or so. So, this year at least, Bob Paid some $7.5m in personal income taxes at one of the lowest income tax rates in the country and his 18m becomes 10.5m.
Bob took home about 10% of his company's total "profits". Let's also not forget his company is "based" at the lowest of all corporate tax rates as well. Bob, the creator and owner of 'A', essentially pays 50 million dollars a year in income/corporate taxes.
Of course, since you're not Bob and you didn't take the risk and make the investment in creating a company, your opinion is "what's another couple of million from his pocket". Despite the fact that the top - what, 5%? - already pay 95% of all federal personal income taxes and our federal corporate taxes are the highest in the developed world - bar none. I'm not even sure I wrote them down right, that's how high they are.
If Bob is determined to have 10m a year - he will have it. Increase his taxes and he'll take it from the company and that means laying off people.
