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>"corporate taxes are ultimately passed onto people" I don't really get this argument. It's always made as if the taxes are applied in a vacuum where market fo

>"corporate taxes are ultimately passed onto people" I don't really get this argument. It's always made as if the taxes are applied in a vacuum where market forces no longer exist. If corporations are operating in a competitive market, they will seek cost advantages and continue to compete for market share. Raised taxes represent an additional expense (for the purposes of this discussion), much like raised energy prices. It is not always the case that these costs are passed on to consumers. Rather, smart companies seek to become more efficient, reduce costs elsewhere, or even realize a slightly lower profit margin per unit in order to maintain or increase market share vs. other competitors. There's also the option to reduce executive compensation, decrease shareholder dividends, and a host of other options available in the interest of remaining competitive. A smart company could actually outmaneuver other competitors, wind up with more volume, realize the same net profit after taxes, and pass lower prices on to consumers. I mean, there are just a ton of other variables here. And, those who advocate low or no corporate taxes are frequently free marketers. So, it's very interesting to me that they all but completely ignore very relevant free market mechanisms that can countervail the effects of raised corporate taxes. IMO, it's just an oft-repeated meme that "higher corporate taxes are automatically regressive because they automatically create higher prices for consumers".

chatmasta 13y ago
> reduce costs elsewhere Like by hiring less employees.
- unclebucknasty 13y ago
  Possibly. Unless the tax code gave them incentive to cut costs elsewhere instead. I would guess such incentive to be logical, given the problem they're trying to solve. In any case, one of the big premises of the article is that hiring less is happening anyway and contributing to the need for a basic livable income. So, that's a bit circular. And, of course, that's just one of many potential cost-cutting measures.
- flyinRyan 13y ago
  Good thing we've got BI then, so we're no longer slaves to making any move at all because it might cost someone a shit minimum wage job.
rayiner 13y ago
> Raised taxes represent an additional expense (for the purposes of this discussion) Raised income taxes aren't really an additional expense, because they are taken out of after-tax net income, not gross income. That complicates the analysis substantially.
- rndmize 13y ago
  This is precisely the reason I don't understand it when people say the cost of the tax will be passed onto consumers. What cost? The tax is on profits...
  - talmand 13y ago
    You may see it that way, but most businesses do indeed see tax liabilities as a cost of doing business. Just because the profits are taxed doesn't mean it's not a cost of some sort. For instance, you could say today's taxes are the cost of doing business next year or even quarter.
    - rayiner 13y ago
      But mathematically taxes don't behave like costs.
      - talmand 13y ago
        Depends on how the company applies the math. If a company wishes to treat tax liability as a cost of doing business, I fail to see how that couldn't be done.
- unclebucknasty 13y ago
  I am aware of how the accounting works, technically, which is why I added the parentheses. Perhaps you can provide more detail as to how you think it changes the analysis in the context of this discussion.
JonFish85 13y ago
Isn't it an easy solution though? Based on what you've said, companies have likely already done what they can to reduce expenses to what they consider an optimal place. I'll try an example, although that might not be totally valid (I'm not really up on current tax laws). These are all made-up numbers and rates: Say you sell a widget for $100, and it costs you $70 to make. Your profit on that is $30, of which let's say you pay $5 in taxes, so let's say you walk away with $25 per widget. If the government bumps up the taxes by a percentage that makes the tax be $6. As a corporate policy, the easiest way to keep the same returns to investors is to tack on another dollar to the price and sell it for $101. Profit is $31, pay $6 in taxes, still walk away with $25/widget. Your competitors are in the same boat as you are, regardless of what the tax rate was/is. Theoretically, if they weren't stealing your business at the lower tax rate, they won't steal it any more or less at the higher tax rate. Sure maybe you consider some other areas to cut costs, but haven't you done that already? I know it's a silly over-simplified example, but if I own a company and I don't want to give back my profit, I raise my prices to compensate, and so do all competitors. The people that lose are the customers.
- unclebucknasty 13y ago
  I see the rationale in that argument, but I think one of the things you're missing is that companies won't just automatically raise their prices in unison. Smart companies may hold their prices constant and take a per unit profit hit to capture more share, allowing them to maintain or even increase overall profit. They may introduce higher margin products and/or develop entirely new strategies or lines of business. And that is the free market mechanism that I mentioned: each company must adjust to the new reality and try to use it to gain an edge over its competitors. They do this all the time. And, given this new incentive to maintain profits, they may be more aggresive in finding cost reduction elsewhere. One might argue that companies are doing all they can now, but you might be surprised at how new realities create new incentives. The other important thing with returning shareholder value is how Wall Street works. It is very much a time-relative game. For example, how did the company do vs. last quarter or same quarter last fiscal year? Viewed this way, you can see why some companies pump the brakes on all out profit-maximization over a given timeframe, instead opting to ensure that the line keeps moving up and to the right over a longer period. So, it's more complicated than all companies are always maximizing profit at all times. Finally, your example that the easiest thing to do is to raise the price by, say, $1 doesn't really hold, irrespective of what direct competitors do with their pricing. They must still keep prices in line with what the market will bear. If not, consumers may begin looking for substitutes or go without (depending on the product). So, while it might be the simplest thing for a company to try, it might not be accepted by the market. This is all part of the free market at work. So, your simplification is tempting, but I think it goes back to creating that vacuum I mentioned, ignoring all of the many market variables that countervail the assumption that $1 in increased "cost" equals $1 in increased price.
deleted 13y ago
[deleted]

chatmasta 13y ago

> reduce costs elsewhere Like by hiring less employees.

unclebucknasty 13y ago
Possibly. Unless the tax code gave them incentive to cut costs elsewhere instead. I would guess such incentive to be logical, given the problem they're trying to solve. In any case, one of the big premises of the article is that hiring less is happening anyway and contributing to the need for a basic livable income. So, that's a bit circular. And, of course, that's just one of many potential cost-cutting measures.
flyinRyan 13y ago
Good thing we've got BI then, so we're no longer slaves to making any move at all because it might cost someone a shit minimum wage job.

rayiner 13y ago

> Raised taxes represent an additional expense (for the purposes of this discussion) Raised income taxes aren't really an additional expense, because they are taken out of after-tax net income, not gross income. That complicates the analysis substantially.

rndmize 13y ago
This is precisely the reason I don't understand it when people say the cost of the tax will be passed onto consumers. What cost? The tax is on profits...
- talmand 13y ago
  You may see it that way, but most businesses do indeed see tax liabilities as a cost of doing business. Just because the profits are taxed doesn't mean it's not a cost of some sort. For instance, you could say today's taxes are the cost of doing business next year or even quarter.
  - rayiner 13y ago
    But mathematically taxes don't behave like costs.
    - talmand 13y ago
      Depends on how the company applies the math. If a company wishes to treat tax liability as a cost of doing business, I fail to see how that couldn't be done.
unclebucknasty 13y ago
I am aware of how the accounting works, technically, which is why I added the parentheses. Perhaps you can provide more detail as to how you think it changes the analysis in the context of this discussion.

JonFish85 13y ago

Isn't it an easy solution though? Based on what you've said, companies have likely already done what they can to reduce expenses to what they consider an optimal place. I'll try an example, although that might not be totally valid (I'm not really up on current tax laws). These are all made-up numbers and rates: Say you sell a widget for $100, and it costs you $70 to make. Your profit on that is $30, of which let's say you pay $5 in taxes, so let's say you walk away with $25 per widget. If the government bumps up the taxes by a percentage that makes the tax be $6. As a corporate policy, the easiest way to keep the same returns to investors is to tack on another dollar to the price and sell it for $101. Profit is $31, pay $6 in taxes, still walk away with $25/widget. Your competitors are in the same boat as you are, regardless of what the tax rate was/is. Theoretically, if they weren't stealing your business at the lower tax rate, they won't steal it any more or less at the higher tax rate. Sure maybe you consider some other areas to cut costs, but haven't you done that already? I know it's a silly over-simplified example, but if I own a company and I don't want to give back my profit, I raise my prices to compensate, and so do all competitors. The people that lose are the customers.

unclebucknasty 13y ago
I see the rationale in that argument, but I think one of the things you're missing is that companies won't just automatically raise their prices in unison. Smart companies may hold their prices constant and take a per unit profit hit to capture more share, allowing them to maintain or even increase overall profit. They may introduce higher margin products and/or develop entirely new strategies or lines of business. And that is the free market mechanism that I mentioned: each company must adjust to the new reality and try to use it to gain an edge over its competitors. They do this all the time. And, given this new incentive to maintain profits, they may be more aggresive in finding cost reduction elsewhere. One might argue that companies are doing all they can now, but you might be surprised at how new realities create new incentives. The other important thing with returning shareholder value is how Wall Street works. It is very much a time-relative game. For example, how did the company do vs. last quarter or same quarter last fiscal year? Viewed this way, you can see why some companies pump the brakes on all out profit-maximization over a given timeframe, instead opting to ensure that the line keeps moving up and to the right over a longer period. So, it's more complicated than all companies are always maximizing profit at all times. Finally, your example that the easiest thing to do is to raise the price by, say, $1 doesn't really hold, irrespective of what direct competitors do with their pricing. They must still keep prices in line with what the market will bear. If not, consumers may begin looking for substitutes or go without (depending on the product). So, while it might be the simplest thing for a company to try, it might not be accepted by the market. This is all part of the free market at work. So, your simplification is tempting, but I think it goes back to creating that vacuum I mentioned, ignoring all of the many market variables that countervail the assumption that $1 in increased "cost" equals $1 in increased price.

deleted 13y ago

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