Why businesses oppose taxation

[pvn]

Many people hear the argument that "the consumer pays all taxes" and then ask "if that's true, why do companies fight taxes and regulation so much? Huh?! Huh?"

The reason corporations lobby against taxes, even though they are passed on to consumers, is that they put the corporation in the position of collecting the tax for free. Corporations have to foot the bill for the collection of taxes in addition to the taxes themselves. Both of these costs are passed onto the consumer, but the government only gets the "benefit" of the taxes that are collected. The resources that the corporation spent on collection are wasted (oh noes, not the "waste" discussion again).

Assume that the government imposed tax has no direct monetary impact - there's no tax to actually collect, government just requires all businesses to fill out 200 pages of paperwork for every $1M in revenue the company collects. The paperwork is shredded as soon as it is received by the government. Would corporations oppose this, even though it doesn't hurt them competitively, since all competitors are identically encumbered?

Do you like doing extra work for no reason?

[Propertarian]

Actually, it is often the case that if the price of a product is higher, consumers don't buy as much of that product.

Hence, corporations make less pre-tax income because of the tax oftentimes.

Furthermore, depending on the supply-demand curve (mostly its elasticity) of the product, the company often pays part of the tax, because it is still profit maximizing to charge the same or roughly the same price for the product as one would with a slightly lower tax rate.

Example (just to illustrate- better examples of inelastic goods are gas, salt, bread and diamonds): Joe gets candy bars for 35 cents, and can sell 100 at 50 cents a piece (15 cents profit per), but only 20 for 55 cents a piece (25 cents profit per). If the tax rate raises his cost of getting candy bars to 37 cents, he would/should still keep his candy bars priced at 50 cents as opposed to raising it to 55 cents. Hence, he has paid the entire tax, and the consumer has paid for none of it. It simply cut into his profit % on each product sold.

So, the business will either sell a lower quantity of products/services because of the tax (this happens on highly elastic goods) OR they will earn less profit on each sale because of the tax. Both hurt the businesses bottom line; both cost the business $.

In reality, most of the time the company, workers and consumers all ultimately pay for some of the taxation on businesses.

And, you forget that almost all companies are consumers as well (e.g. Wal-Mart buys from a distrubitor, which buys from a manufacturer, which buys raw matierals).

All these things explain why businesses are opposed to increases in taxation as well as well as being opposed to it in general. The cost of collecting it, as you describe it here, is roughly the same at a tax rate of 30% as opposed to 35%, but they would still oppose the increase.

[hmkpoker]

You've assumed quite an interesting supply-demand curve there; a 10% increase in consumer cost results in an 80% loss in sales? (the sale of gas at pumps, which you cited as an example, is clearly not reflective of this.) And since we're talking about taxes here, all the competition is going up as well.

I can't think of one good that is this inelastic. A 10% increase from all parties results in an 80% sales loss? If this were true, we could tax any corporation to the point we're they're scarcely making a penny and the sales prices wouldn't change...yet in the real world, the prices go up, the sales are high, and the CEOs still make money.

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Joe gets candy bars for 35 cents, and can sell...for 55 cents a piece (25 cents profit per).

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Come on.

[yukoncpa]

Why businesses oppose taxation? Because taxation destroys business. Look at the luxury tax that nearly destroyed the U.S. boat building business.

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In 1990 the Joint Committee on Taxation projected that the 1991 revenue yield from luxury taxes would be $31 million. It was $16.6 million. Why? Because (surprise!) the taxation changed behavior: Fewer people bought the taxed products. Demand went down when prices went up. Washington was amazed. People bought yachts overseas. Who would have thought it?

According to a study done for the Joint Economic Committee, the tax destroyed 330 jobs in jewelry manufacturing, 1,470 in the aircraft industry and 7,600 in the boating industry. The job losses cost the government a total of $24.2 million in unemployment benefits and lost income tax revenues. So the net effect of the taxes was a loss of $7.6 million in fiscal 1991, which means the government projection was off by $38.6 million.


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link

[hmkpoker]

Another point of interest-

The productive labor of the employee, which is purchased at an hourly rate by the employer, is a very elastic commodity. In the absence of better options, human beings are willing to (and do) work in horrible conditions for meager pay. This is obviously true; look at an Indonesian sweat shop, or the coal mines of the late 19th century (after all, this is what the left usually complains about).

So considering that employers want to further their own bottom line, and considering that an employer's means of production can come from an elastic source, and considering that taxation will have similar effects on the competition...using your logic, couldn't this have some negative effects on the workforce?

[pvn]

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Actually, it is often the case that if the price of a product is higher, consumers don't buy as much of that product.

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This is often true. I was specifcially addressing the case where the tax is *purely* pass-through.

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And, you forget that almost all companies are consumers as well (e.g. Wal-Mart buys from a distrubitor, which buys from a manufacturer, which buys raw matierals).

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I haven't forgotten this. It doesn't have any effect on how much a tax passes through.

[NT!]

I always figured that the most common sense reason businesses oppose taxation is that it takes money out of the hands of their consumers and puts it in the hands of government.

But then again, tax dollars subsidize a multitude of industries and pay grossly inflated prices for research and commodities to take the 'risk' element out of new initiatives for those lucky/connected enough, so that can't be it.

NT

[andyfox]

I'm not so sure businesses collect the taxes for free. Might they not look at the cost of collecting the tax as "X" and try to increase revenue by, say, 1.2("X"), making the tax collection process a revenue center?

Many big retailers complain about their vendors when the vendor either ships incomplete, or makes a mistake in the shipment or the paperwork, or ships the wrong product, or charges the wrong price, or uses the wrong freight company, etc. They then charge back their vendor for the error. They all say they want to minimize chargebacks because errors hurt their business.

But they are not being truthful. In fact, many of them look at the receiving department as a revenue source, inventing or exaggerating vendor errors in order to generate chargebacks. Might this not also be the case with tax collection?

Anyway, I don't think it's taxes per se that businesses oppose, but higher taxes. If the corporate income tax rate was raised (or lowered) by 20% tomorrow, would this raise (or lower) the cost for a business of collecting the tax?

[morphball]

This is one of the few threads where, so far, I think everybody is right...

[pvn]

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But they are not being truthful. In fact, many of them look at the receiving department as a revenue source, inventing or exaggerating vendor errors in order to generate chargebacks. Might this not also be the case with tax collection?

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How??? Send a bill to the government?