Lets take a hypothetical corporation who is producing widgets. Their widgets cost about $1.00 apiece. The raw materials cost about 50¢ per widget. Labor costs about 30¢ per unit, and other overhead costs 15¢ per unit. This leaves a profit of 5¢ per unit.
Now say that their government has decided to put a 10% tax on all products. The corporation has a choice. They can absorb the 10% tax fully, and make -5¢ profit, absorb part of it, or pass it all on to the consumer. This mostly is based on the concept of price elasticity, that is, how high a company can charge before people stop buying the product.
If the company raises prices, anyone who depends on widgets to make other products have to pay more for raw materials, and pay the tax, so their prices go up. As prices go up, individuals have to pay more, and as profits go down, companies look for ways to cut costs, which ends up being in either jobs or salaries.
If the Widget Corp. was to absorb the tax their workers would suffer from the cost cutting which would have to happen in order for the company to stay in business.
If the consumers are making less and paying more, the end result is that they have to buy less items. This in turn means less sales, and companies have to cut more jobs.
So the next time you complain about how much the "big bad" companies make, and that they need to be taxed more to pay for a nonexistent "free lunch" which everyone wants, remember that lower taxes equates to more investment, higher wages, and more sales, which in the end benefits the whole economy since it creates job growth and opportunity for new businesses.
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4 comments:
Wow, Goose. I'm impressed. Congrats. :)
This scenario is fine. I still would like to know why Chevron, BP, and Phillips made record profits while gas prices climb. Or why refineries operate at capacities that keep demand high to cushion prices. The ethical implications are quite severe.
andrew, what does Chevron, BP, and Phillips record profits have to do with corporate taxes. if the taxes upon them went up then gas prices would as well. so what exactly is your point? refineries operate at capacities to keep the supply low not the demand high. the demand for oil based gasoline in this country will be high until there is an alternative fuel, but when there is i don't believe that it can truly replace oil based gas and diesel.
I guess I was off target. But to reply anon, i think that a network of motor vehicles running on a waste byproduct of the kerosene manufacturing process (its true gasoline was once dumped in large quantities in waterways as a waste product)was once just as unimaginable, we just need some real innovators.
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