Reply #7: ah, yes, corporations are just pass-throughs. you wonder why they bother?

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if the cost of corporate taxes were 100% passed through to consumers, why would corporations object so strongly to them? do you really think they're so valiently defending their consumers when there's zero impact to their own bottom line? of course not.

the truth, as any sane economist can tell you, is that any tax or regulation can impose a "wedge" on the buyer-seller transaction, which effectively lowers the value of the transaction to BOTH parties. i.e., the cost is SHARED between buyer and seller. how much is paid by the buyer and how much is paid by the seller depends on many factors.

for instance, if the tax is specifically SALES-based, such as a -- wait for it -- SALES TAX, then the corporation can lower its exposure to the tax only by increasing the effective price to consumers by 100% of the tax. this effective price hike keeps the corporate profit per transaction constant, but also reduces demand at the higher price. thus total sales drop, as do corporate profits.

so normally, corporations will lower to underlying, pre-tax price to an "optimal" level. the price is slightly lower (perhaps by half of the sales tax, maybe more, maybe less) this way, the effective cost to the consumer is higher by about half the sales tax, and the effective net income from the sale to the seller is also reduced by about half of the sales tax. maybe the optimal split is 80-20, maybe it's 20-80, it depends. either way, sales are still reduced as way, though not as much as if the consumer was made to bear 100% of the sales tax.


now let's consider what happens if you place a tax on sellers on something OTHER than profit. for instance, cost of production or profit. now, corporations are free to consider leaving the cost of the transaction completely unaffected. this way, the effetive price to consumers and the effective income per transaction is completely unaffected, and sales are not reduced. not interference with their market share strategy, no damaged customer relations, etc. they are free to minimize their cost of the tax through several other means, including by reducing their dividends, cutting costs, reducing staff, freezing wages, or just saying "no" to gold commodes in the executive washroom. perhaps the "optimal" strategy will include passing through SOME of the cost to consumers, but a non-SALES-based tax permits the optimal solution to pass portions of the cost onto many other constituencies.



so you would think that corporations would prefer their taxes to come in the form that gives them the most flexibility, i.e., income taxes. yes, they scream up and down that they would PREFER sale-based taxes or value-added taxes (which are very close to sales taxes).

why is that? perhaps it is because they do NOT have the interests of the consumers at heart, and prefer to push as much as possible of the tax on to consumers and blame the government. a tax on PROFITS makes it difficult for them to do this. they would have to simply raise their nominal prices and EXPLAIN that it's higher than it otherwise would be due to taxes on profit. with SALES taxes, they can set keep their nominal prices unchanged, and tack on an explicit SALES tax and completely blame the government.

which is exactly what they do.