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IME this is one of the most common economic misconceptions that people have, to think that the economic cost of a tax is borne by whoever nominally pays it. Mo

IME this is one of the most common economic misconceptions that people have, to think that the economic cost of a tax is borne by whoever nominally pays it. Most people with no economics background will for example think that it's just companies that pay salary related taxes, or consumers who pay VAT. Those are both true in the accounting sense that the money is paid by those respective parties to the government but not in the economic sense of who would have the extra money if there were no tax.

stavros 5y ago
My dad had the same reaction when I told him that we'd pay the extra credit card fees. He said "the merchant pays those" and didn't seem to get my "where do you think the merchant gets the money from?" reply.
- afiori 5y ago
  While all the money is coming from the customers this changes which customers pay and more and which pay less. The guy buying a whole month of grocery will pay less with (fair) explicit fees, the guy buying a single redbull would pay more. Personally my problem with credit card fees is that they are generally not advertised and the costumer should easily be able to know how much they are going to get charged even before the checkout or ordering (this obviously applies to non VAT-included prices). Merchants on the other hand should reject non-profitable payment options (in my country it is quite rude to try to pay a coffe with a visa/mastercard)
- forty 5y ago
  Depending on the product and the competition on the market of that product, the merchant might also take the extra fees from their margins rather than raise prices.
  - greiskul 5y ago
    Yeah, this argument doesn't always hold water. If a seller could increase their price without affecting their sales volume, why wouldn't they have done so already to generate more profit? The price product of most major companies is at what the company assumes will provide them the most profit in the demand curve. So by increasing the cost for the company with a tax, it doesn't necessarily follow that the maximum profit possible will be one where the tax is entirely passed to the consume.
    - refurb 5y ago
      It’s not, but presumably all substitution products would see a similar tax, so you’re just shifting the supply curve up across the board. It really comes down to the market dynamics for that particular product and its competitors.
- ZYinMD 5y ago
  It's the same when you try to buy a house in the US and you have to pay a realtor to represent you, who takes 3% of sell price as commission. You'd then bargain "I already found the house myself, I just need you to draft the offer, can you do it for less", and they'll reply "no, but don't worry, you only pay for the house, and our commission is paid by the seller".
  - tonyedgecombe 5y ago
    The way houses in the US are sold looks insane from outside. When I last sold a house in the UK I paid the estate agent 1.5%, there were no buyers fees.
    - pcardoso 5y ago
      I sold my house without any agents in Portugal. They are common and people use their services frequently, but I figured I could do it by myself and pocket the fees.
    - wil421 5y ago
      OP is full or crap or misinformed. Buyers almost never pay any fees for realtors in my area of the US. Unless the seller is trying to rip you off or something. Maybe it’s different on the west coast. Everyone I know who has bought a house (not selling) has the seller pay the commission. I bought a house 2 years ago and the seller didn’t have a realtor, he paid 3% to my realtor. It’s baked into the price, you don’t pay $500k for a house and then add on 6% or 3% percent commission to pay the realtors. The commission comes out of the sale price.
      - plorkyeran 5y ago
        Where you do think the money for the commission comes from? Houses aren't a fixed-price good where you declare that you're selling a house for $500k and stick exactly to that price regardless of what you're offered. If a buyer without an agent to pay offers you $490k, that's a better offer than one with an agent offering you $500k if it means you don't have to pay that 3%, and the buyer has saved $10k by not having an agent.
- giaour 5y ago
  There is a labor cost to accepting cash (or, to a lesser extent, checks) that you don't incur when someone pays with a credit card. I recall reading some dubiously sourced research claiming that it costs most businesses more to accept cash than it does to take a credit card[0], which didn't seem that plausible, but it's probably closer to a wash than you would think. [0]: I think it was this: https://www.businesswire.com/news/home/20180130005244/en/New-Research-IHL-Group-Shows-Retailers%25E2%2580%2599-Cash-handling/ https://www.businesswire.com/news/home/20180130005244/en/New...
  - cesarb 5y ago
    I have seen this argument a lot, but whenever I see a separate price for paying with cash versus paying with credit cards, the price for paying with cash is always lower.
    - giaour 5y ago
      True, but the merchants with separate prices tend to be smaller organizations, since they need to fly under credit card processors' radar to do this. For a mom and pop shop, they may be willing to do the extra labor to make back the 3%, even if it's not something that would make economic sense to pay an employee to do. (Similar to how it's cheaper for you to mow your own lawn on the weekends, even if the money you save is less than your hourly wage at work.) Or they may view labor as a sunk cost and see cash handling duties as a way to decrease idle time for staff.
    - lotsofpulp 5y ago
      Cash allows the merchant to pocket a lot more by evading taxes on the income. The same mechanism works the opposite way for larger employers, where electronic payments cut losses from theft, and the costs required to prevent the thefts.
afiori 5y ago
the purpose of well-thought tariffs is tho incentivize local markets and production, that is how South Korean and Japanese car companies were able to exists. The two cases where it is almost unconditionally stupid is if there is no chance to develop or grow a local market or if you are reliant on those same countries for your own export (they are most likely going to tariff your products back)
dmurray 5y ago
> Those are both true in the accounting sense that the money is paid by those respective parties to the government Where do you live that this is true of VAT? Everywhere I know of, the retailer is responsible for paying VAT on the products they sell to consumers.
- lordnacho 5y ago
  Yes this is true. I thought about this when I wrote it, and the explanation is that as the retailer you just subtract the VAT off your books, and the customer is the one who "paid", all you're doing as the business is counting the money and sending it through to government. So in your accounts you just have this VAT number that appears to be the customer paying the government, but economically it's not quite like that.

stavros 5y ago

My dad had the same reaction when I told him that we'd pay the extra credit card fees. He said "the merchant pays those" and didn't seem to get my "where do you think the merchant gets the money from?" reply.

afiori 5y ago
While all the money is coming from the customers this changes which customers pay and more and which pay less. The guy buying a whole month of grocery will pay less with (fair) explicit fees, the guy buying a single redbull would pay more. Personally my problem with credit card fees is that they are generally not advertised and the costumer should easily be able to know how much they are going to get charged even before the checkout or ordering (this obviously applies to non VAT-included prices). Merchants on the other hand should reject non-profitable payment options (in my country it is quite rude to try to pay a coffe with a visa/mastercard)
forty 5y ago
Depending on the product and the competition on the market of that product, the merchant might also take the extra fees from their margins rather than raise prices.
- greiskul 5y ago
  Yeah, this argument doesn't always hold water. If a seller could increase their price without affecting their sales volume, why wouldn't they have done so already to generate more profit? The price product of most major companies is at what the company assumes will provide them the most profit in the demand curve. So by increasing the cost for the company with a tax, it doesn't necessarily follow that the maximum profit possible will be one where the tax is entirely passed to the consume.
  - refurb 5y ago
    It’s not, but presumably all substitution products would see a similar tax, so you’re just shifting the supply curve up across the board. It really comes down to the market dynamics for that particular product and its competitors.
ZYinMD 5y ago
It's the same when you try to buy a house in the US and you have to pay a realtor to represent you, who takes 3% of sell price as commission. You'd then bargain "I already found the house myself, I just need you to draft the offer, can you do it for less", and they'll reply "no, but don't worry, you only pay for the house, and our commission is paid by the seller".
- tonyedgecombe 5y ago
  The way houses in the US are sold looks insane from outside. When I last sold a house in the UK I paid the estate agent 1.5%, there were no buyers fees.
  - pcardoso 5y ago
    I sold my house without any agents in Portugal. They are common and people use their services frequently, but I figured I could do it by myself and pocket the fees.
  - wil421 5y ago
    OP is full or crap or misinformed. Buyers almost never pay any fees for realtors in my area of the US. Unless the seller is trying to rip you off or something. Maybe it’s different on the west coast. Everyone I know who has bought a house (not selling) has the seller pay the commission. I bought a house 2 years ago and the seller didn’t have a realtor, he paid 3% to my realtor. It’s baked into the price, you don’t pay $500k for a house and then add on 6% or 3% percent commission to pay the realtors. The commission comes out of the sale price.
    - plorkyeran 5y ago
      Where you do think the money for the commission comes from? Houses aren't a fixed-price good where you declare that you're selling a house for $500k and stick exactly to that price regardless of what you're offered. If a buyer without an agent to pay offers you $490k, that's a better offer than one with an agent offering you $500k if it means you don't have to pay that 3%, and the buyer has saved $10k by not having an agent.
giaour 5y ago
There is a labor cost to accepting cash (or, to a lesser extent, checks) that you don't incur when someone pays with a credit card. I recall reading some dubiously sourced research claiming that it costs most businesses more to accept cash than it does to take a credit card[0], which didn't seem that plausible, but it's probably closer to a wash than you would think. [0]: I think it was this: https://www.businesswire.com/news/home/20180130005244/en/New-Research-IHL-Group-Shows-Retailers%25E2%2580%2599-Cash-handling/ https://www.businesswire.com/news/home/20180130005244/en/New...
- cesarb 5y ago
  I have seen this argument a lot, but whenever I see a separate price for paying with cash versus paying with credit cards, the price for paying with cash is always lower.
  - giaour 5y ago
    True, but the merchants with separate prices tend to be smaller organizations, since they need to fly under credit card processors' radar to do this. For a mom and pop shop, they may be willing to do the extra labor to make back the 3%, even if it's not something that would make economic sense to pay an employee to do. (Similar to how it's cheaper for you to mow your own lawn on the weekends, even if the money you save is less than your hourly wage at work.) Or they may view labor as a sunk cost and see cash handling duties as a way to decrease idle time for staff.
  - lotsofpulp 5y ago
    Cash allows the merchant to pocket a lot more by evading taxes on the income. The same mechanism works the opposite way for larger employers, where electronic payments cut losses from theft, and the costs required to prevent the thefts.

afiori 5y ago

the purpose of well-thought tariffs is tho incentivize local markets and production, that is how South Korean and Japanese car companies were able to exists. The two cases where it is almost unconditionally stupid is if there is no chance to develop or grow a local market or if you are reliant on those same countries for your own export (they are most likely going to tariff your products back)

dmurray 5y ago

> Those are both true in the accounting sense that the money is paid by those respective parties to the government Where do you live that this is true of VAT? Everywhere I know of, the retailer is responsible for paying VAT on the products they sell to consumers.

lordnacho 5y ago
Yes this is true. I thought about this when I wrote it, and the explanation is that as the retailer you just subtract the VAT off your books, and the customer is the one who "paid", all you're doing as the business is counting the money and sending it through to government. So in your accounts you just have this VAT number that appears to be the customer paying the government, but economically it's not quite like that.