10-16-2009, 04:57 AM
Quote:Corporation pass their taxes on to their customers, and eventually to the consumer. This becomes regressive tax on all, including the middle class.Not always. You are right if the product price has little or no effect on demand.
For products whose demand is based on price, as is the case for the product of a monopoly or for a prestige product only made by one manufacturer. In this case, the price is set to an optimum-profit value that often has little to do with the cost of making the product. The effect of the manufacture cost is providing a floor that the seller will not go below -- but often the "sweet spot" price for such a product is well beyond the manufacturer cost (otherwise there would be 0 units sold).
Those of you who have studied economics already know what I'm saying (mumble mumble elasticity mumble) but I'll provide an example for anyone who is saying "WTF Van?"
Case study. Vandelay Industries makes a premium electronic ear canal cleaner that is unmatched in the ear cleaner market. Nobody else's product comes close, so there is a demand for VanGo's Earwax-B-Gone. Here is a price/demand chart:
For $15: 9000 units would sell.
For $20: 7000 units would sell.
For $25: 5000 units would sell.
If the cost of making each unit is $5, then the pre-tax profit is:
For $15: 9000 * $10 = $90,000
For $20: 7000 * $15 = $105,000
For $25: 5000 * $20 = $100,000
Vandelay Industries would set the price at $20 to maximize profit, and expect to move 7000 units.
Suppose a new tax came along that was about 33.3%, so VI had to pay $35,000. You might figure that $5 per unit, so they should raise their price by $5 per unit. But the price/demand relationship has not changed, so if the sale price goes to $25, Vandelay would lose $5000. They aren't going to do that. They'll keep the price the same. (Tho they may have trouble making payroll...)
Maybe I'm not distinguishing "customer" vs. "consumer" like you do, so maybe my argument is all wrong. If so, I will be happy to learn why.
-V