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Because the tax is a stealth tax on the populace. The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically,

Because the tax is a stealth tax on the populace. The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y. The company can increase the prices on its goods by y, which means everyone now pays y more (so, the government is now making the corporation collect the tax). Or it can absorb the cost of the tax, which would hurt it’s operating margin to survive, a small amount maybe could be done, but after a while they simply raise the price and pass y along to the populace. It is a stealth tax, pure and simple. If you want the more pernicious suggestion, the tax is a poor persons sales tax disguised as populace claptrap to make the electorate like they are sticking it to the big fat cats in corporations.

matheusaf 6y ago
> The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y. Not really, this only happens for perfectly inelastic goods. We can use the price elasticity of demand and price elasticity of supply to determine what amount of the tax burden will fall on buyers and sellers [1]. We can even show that for perfectly elastic goods, the tax burden will fall entirely on the sellers. [1] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence
- syshum 6y ago
  Kinda of, but investor (especially in private companies) absolutely set the level of margin they require from the corporation the CEO's job is hit that margin with in reason, and if not develop a plan to hit that margin If the company is unable to hit the target long enough that is when companies shut down, so sure you can say "that is only true with perfectly inelastic goods but you fail to understand that moving your capital to other things is always an option If a company sells X goods and can only ever get a investor return of 1% on their capital no investor is going to say in that business, they will sell off the company assets and take their investment to greener pastures. Same is true if the investors demand a 8-10% return and are only ever getting 5% on their investment, the will divest from the company and move on
  - matheusaf 6y ago
    Yes, I agree that there will be pressure on managers from investors, and they will try to recover their margins in several ways, but if they try to recover it from price increases beyond what the tax incidence suggests, their margins should be lower - and not higher, so they are unlikely to do that. Now, the other effect you suggested is interesting, there are firms that exit the market because the margins are unable to give the returns that investors expect. However, this is factored in the supply curve, particularly in the long-run supply curve, so the microeconomic model still stands.

matheusaf 6y ago

> The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y. Not really, this only happens for perfectly inelastic goods. We can use the price elasticity of demand and price elasticity of supply to determine what amount of the tax burden will fall on buyers and sellers [1]. We can even show that for perfectly elastic goods, the tax burden will fall entirely on the sellers. [1] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence

syshum 6y ago
Kinda of, but investor (especially in private companies) absolutely set the level of margin they require from the corporation the CEO's job is hit that margin with in reason, and if not develop a plan to hit that margin If the company is unable to hit the target long enough that is when companies shut down, so sure you can say "that is only true with perfectly inelastic goods but you fail to understand that moving your capital to other things is always an option If a company sells X goods and can only ever get a investor return of 1% on their capital no investor is going to say in that business, they will sell off the company assets and take their investment to greener pastures. Same is true if the investors demand a 8-10% return and are only ever getting 5% on their investment, the will divest from the company and move on
- matheusaf 6y ago
  Yes, I agree that there will be pressure on managers from investors, and they will try to recover their margins in several ways, but if they try to recover it from price increases beyond what the tax incidence suggests, their margins should be lower - and not higher, so they are unlikely to do that. Now, the other effect you suggested is interesting, there are firms that exit the market because the margins are unable to give the returns that investors expect. However, this is factored in the supply curve, particularly in the long-run supply curve, so the microeconomic model still stands.