Had some great conversations over the weekend with a dear, longtime friend who is, shall we say, rather more conservative than I am. He's not a wingnut or a teabagger or anything like that (funny how many of these non-crazy conservatives I actually have in my life, and how often I have to describe them this way), but he does subscribe to a lot of the conservative memes that most of us here, outside the paracosm, know aren't true.
One is that Social Security is about to go completely broke and collapse.
Another is that corporations will raise prices on their products if we raise their taxes or impose new taxes on them, in order to "pass the cost" of the tax increase or new tax on to the consumer. Therefore, raising or imposing new taxes on corporations is just a way of raising taxes on everyone else, by making products and services more expensive. (The topic here was, of course, the ACA, and the subsidies being funded in part by taxes on medical-device manufacturers.)
Let's set the first one aside for the moment and concentrate on the second one. I'm trying to find out / figure out if this is really true. Has this ever actually happened? Have American businesses ever increased the price of their products in direct response to, and for the direct and explicit purpose of offsetting the "cost" of, a tax increase?
Now, Federal Income Taxation was my least favorite class in law school, but I do remember most of it. And one fundamental principle of taxation is that we tax income, not people and not corporations. In addition, we only tax taxable income, and not all income is taxable. That, of course, includes corporate revenues. Not every dollar that a corporation takes in during a given year is taxed. Dollars that they take in and use for business expenses, for example, are not taxed. Once all the non-taxable dollars are taken out, then we tax whatever's left. In other words, we tax profits, not revenues.
That being the case, taxes on corporate profits are not, strictly speaking, a "business expense." Business expenses are the outlays you make during the year using either the dollars you took in during the year that won't be taxed, or profits from previous years that have already been taxed. Taxes are not a "cost of doing business" in the same sense that inventory and labor are. You can pass on the cost of inventory, labor, supplies, equipment, permits, insurance, services, utilities, transportation, and whatever else you need to buy to run your business; you build the cost of all that into the price of your goods and services, and then add a profit margin on top of it. If you increase prices because of taxes, since you don't pay taxes until after your profits are made, all you end up doing is increasing your profit margin and taking in more profit, which means more dollars that will be taxed, and thus a higher tax bill.
Tell me if I've got any of this wrong. I'm a lawyer, not a businessman. But it seems to me that raising prices to offset a tax increase is counter-productive, and more to the point, I don't have any recollection of this ever actually happening. So I ask, those who know more than I do, is there anything to this? Has this ever actually happened in the manner that our friends on the right are always warning us about?
While I was writing this I had a thought. I can see how a corporation could pass a discrete tax on to the consumer, where for example the state imposes a special tax on every ticket sold by movie theatres or sports venues, and the theatre/venue adds that to the ticket price and thus makes the buyer pay that tax. Or if there's a tax on every room a hotel lets out, they add it to the guest's hotel bill. But these are more like fees or surtaxes than taxes qua taxes. Still, it raises another question: Has anyone ever asked a conservative why they're OK with corporations making consumers pay their taxes for them?