Are corporate taxes simply forwarded to the consumer?

[jasc15]

When a company's costs go up, they adjust as needed to maintain profitability.  I know very little about corporate operations, and can only apply my common sense to some of these things.  So how does increasing corporate taxes not simply increase the cost of the products they make, thereby indirectly increasing taxes on consumers?

For one group, this is a great argument against high taxes/big government.  For the other, I'm sure there is some demonstration of how this is a fallacy created by the former group, but it seems quite sound to me.

[Riceball]

Company taxes are taxes on profits, not on sales...so most likely no. I could dig up some empirical stuff if you'd like?

[jasc15]

Company taxes are taxes on profits, not on sales...so most likely no. I could dig up some empirical stuff if you'd like?

Yes, I'd like to see something empirical if you could.  As to your point; is there really a difference between tax on profit or sales?  Either way, its a cost of doing business.

[Riceball]

The difference is its not an ad valorem tax, so it doesn't incrementally add to the cost of making a sale. Its a tax on the total revenue subtract cost of the business in a given period, and so if they passed the "cost" on to consumers they would be "increasing their revenue" ceteris paribus and thus paying additional corporate tax on it.

I'll have a dig today if I get time for you, but at an initial glance, I'd say I'm correct  

inb4 Partisan-Rumble-in-the-Jungle

[Super Dude]

Riceball, I have a feeling that if half the U.S. legislature was as well-versed in economics as you are, we wouldn't be in such dire straits today.

[Riceball]

Aw shucks, I try.










Although, I do get paid to do it, so I should really know what I'm talking about...

[PraXis]

Pretty much... but any increase in operating cost = higher price for the consumer whether it's because of taxes or other increases to the company. Companies will always try to meet or exceed their profit margin as long as consumers keep buying.

[ReaPsTA]

Yes.

We can lock the thread now.

[Riceball]

Yes thats true, but the imposition of a company tax doesn't automatically mean the "cost" of it will be passed on to consumers.

Company tax is a tax on the companies total utility, or the rent that it generates. This differs from something like a sales tax on business because that taxes the effort of a sale; company tax is the better way to generate income tax revenue from businesses as it doesn't dilute incentives to the same degree as a tax on the effort of a sale. Thats probably as clear as mud.

[ReaPsTA]

Everything you're saying is talking around the simple fact that companies want to get a certain profit margin out of their sales.  All taxes of any kind do is make profiting more difficult, so either prices have to increase or cost of production has to go down (sometimes through firing/not hiring workers) in order to meet the desired profit.  Or they could just not provide the service at all.

[lordxizor]

Not necessarily, but the company is going to try and recoup their costs somehow. They can raise their prices, negotiate lower prices with their suppliers, lower wages or fire employees, etc. It's not necessarily the customer that's going to pay, but if a company has to pay $1M more in taxes, that's $1M that someone is going to lose out on.

[Scheavo]

Everything you're saying is talking around the simple fact that companies want to get a certain profit margin out of their sales.  All taxes of any kind do is make profiting more difficult, so either prices have to increase or cost of production has to go down (sometimes through firing/not hiring workers) in order to meet the desired profit.  Or they could just not provide the service at all.

Correct me if I'm wrong, but in business terms, income refers to money gained minus operating costs. If you make zero-profit, like non-profit entities, you can easily manage to stay afloat, pay all your workers, etc. Of course, you can't expand this way, you're missing the capital gained from income. The worst possible outcome is then less expansion of a business, but this has many other factors involved in it, and all that money isn't going to be used as capital, etc.

[Riceball]

You said exactly what I came back to say lol.

Company tax is a tax on profitability, so once you've made your 30% margin, the Government scoops a bit of it off the top. This is wholesale-y different to sales tax or ad valorem taxes, which tax X cents in the dollar from every unit sold. Company tax only hits once all expenditures are taken into account, not on every single unit sold. Sheesh.

I don't agree with your assertion that companies may not provide their services or fire workers to maitain a level of profit which is reduced marginally because of company tax; company tax has always been there, will always be there and is taken into account when making business decisions. I mean, am I not going to work more hours because I don't get 100% of the additional income I earn? Am I going to stop working because Gov'nant gon take ma bacon? Please.

As I've said numerous times (sounds familiar with some of the arguments on tax and Government on here...), taxes on rents are amongst the most efficient taxes. Companies exist to make a profit, if they do, the Government, who provides all kinds of benefits, infrastructure and securities to them and their workers is 100% entitled to take some of the gain? Where do you think they'll get the money to provide roads/hospitals/trains/parks? Oh thats right, the low tax model employed in Umerica has meant you are now stuck with 50 year old public transport infrastructure, people who die driving between hospitals because they can't afford insurance...I could go on, but you see my point. Tax and Government are facts of life in a modern, capitalist economy, deal with it or go live in Uganda or something.

I'm not arguing for or against the size of Government here, it just seems like sometimes people think we'd be better off with no tax and no Government. Hate to break it to you, but you are wrong.