Why do we tax businesses at all?

[PaperclipGod]

I was thinking about this today, and I'd like to hear everyone's thoughts.

Is there ever a situation where a business would not pass a tax on to the consumer? How could it do so? How is a tax on business (businesses that sell staple goods, at least) not just an indirect tax on the consumer?

Wouldn't a tax system which only taxes luxury items and doesn't tax stuff like groceries, gas, and income make more sense? i.e., if you want things that a middle-class person cannot afford (or rarely afford), then you must pay a tax for that right.

Although, then there's the problem of who gets to decide what "luxury" is defined as.

 

[Farang]

There are universities that will answer your questions in detail in Econ 101.

 

[PrinceofWands]

I think the best solution is to not allow businesses to have income. Businesses aren't people, they aren't real, and shouldn't be taxed. Any money that a business makes is earned by someone, even if they turn around and put it back into the business. I believe firmly that every dollar that's made should be attached to a single individual, who is then responsible for the tax on it.

 

[sandorski]

Business passes all Costs onto the Consumer. Part of that Cost is paying for Government Services.

 

[PaperclipGod]

Originally posted by: Farang
There are universities that will answer your questions in detail in Econ 101.

Oh, I'm sorry, you must be confused -- I figured that since I was asking a 5 line economics question in a forum dedicated to computers it'd be pretty obvious that I wasn't looking for a detailed answer.

I often forget that we share these forums with the mentally handicapped, I'll try to be more sensitive in the future.

 

[zephyrprime]

The converse is also true. Why tax people? Won't they just buy less from businesses?

Of course businesses will pass along the cost to people. But if that's the case, isn't taxing businesses equivalent to taxing individuals as you suggest?

I think the best tax system is one that has tax equality between the production and consumption sides of the economy.

 

[soccerballtux]

Originally posted by: PrinceofWands
I think the best solution is to not allow businesses to have income. Businesses aren't people, they aren't real, and shouldn't be taxed. Any money that a business makes is earned by someone, even if they turn around and put it back into the business. I believe firmly that every dollar that's made should be attached to a single individual, who is then responsible for the tax on it.

Ha ya right. Good luck convincing people to start new businesses, then. That's one of the best things about America; you can bankrupt on your business loan and not be required to pay it back. This is a boon for innovation.

 

[Craig234]

Originally posted by: PaperclipGod
I was thinking about this today, and I'd like to hear everyone's thoughts.

Is there ever a situation where a business would not pass a tax on to the consumer? How could it do so? How is a tax on business (businesses that sell staple goods, at least) not just an indirect tax on the consumer?

Wouldn't a tax system which only taxes luxury items and doesn't tax stuff like groceries, gas, and income make more sense? i.e., if you want things that a middle-class person cannot afford (or rarely afford), then you must pay a tax for that right.

Although, then there's the problem of who gets to decide what "luxury" is defined as.

Taxing *anyone* is a 'drag' on the frontend.

You could just as easily argue, why tax consumers? That money would have been spent on goods and services, creating opportunities for business and growth.

Do we really need to debate a hundred thousand times the need for any taxes at all? They're needed, and given that, the fact they are over head for business is well known.

That's part of how they work, the 'necessary evil', to make other things work.

Edit: posting then reading:

Leads to noticing I repeated a point form Zephyrprime.

 

[Bowfinger]

Not necessarily. The Econ 101 part is that a competent business always sets prices to maximize profit. Prices are set to that sweet spot on the supply vs. demand curve where increased prices results in lost sales and lower profits; decreased prices also reduce profits because increased sales are not enough to offset reduced profit margins. Maximizing profit means finding the "just right" price.

For a business, an "income" tax is a tax on profits. Profits go to business owners, whether they be proprietors or share holders. A business income tax reduces net profit, meaning it reduces the total money going to the business owners. Naturally the owners may want to increase prices to compensate for the profit taken by taxes. If the business is competently managed, however, they've already set prices to maximize profits. Increasing prices due to taxes would therefore have the opposite effect, actually reducing profits even more.

Real world economics are a bit more complex than that, of course, but the bottom line is most businesses have a limited ability to raise prices to offset income (profit) taxes.

 

[Modelworks]

An even better question is why don't people that receive social security have a tax exempt card ?
If someone gets $1000 in benefits, $70 of that goes back to the government at a 7% sales tax rate. So they are taxing themselves.

 

[Capt Caveman]

Originally posted by: PrinceofWands
I think the best solution is to not allow businesses to have income. Businesses aren't people, they aren't real, and shouldn't be taxed. Any money that a business makes is earned by someone, even if they turn around and put it back into the business. I believe firmly that every dollar that's made should be attached to a single individual, who is then responsible for the tax on it.

 

[JJChicken]

Its easier to tax businesses and theres less tax evasion I think but I might be wrong.

 

[her209]

Businesses get taxed on their profits, i.e., expenses aren't taxed.

 

[GroundedSailor]

Originally posted by: Barack Obama
Its easier to tax businesses and theres less tax evasion I think but I might be wrong.

Yes I think you're wrong. There may be less evasion but there is certainly a higher level of use of loopholes and adjusting the business to avoid as much taxes as possible. Sometimes the line between evasion and avoidance can get quite blurry.

 

[heyheybooboo]

Originally posted by: PaperclipGod
I was thinking about this today, and I'd like to hear everyone's thoughts.

Is there ever a situation where a business would not pass a tax on to the consumer? How could it do so? How is a tax on business (businesses that sell staple goods, at least) not just an indirect tax on the consumer?

Wouldn't a tax system which only taxes luxury items and doesn't tax stuff like groceries, gas, and income make more sense? i.e., if you want things that a middle-class person cannot afford (or rarely afford), then you must pay a tax for that right.

Although, then there's the problem of who gets to decide what "luxury" is defined as.

Demand Curve

Businesses do not 'pass on' their cost of taxes any more than they reduce prices when taxes are cut.

The consumer is the ultimate 'decider' at the price point that tickles their fancy. A business will maximize 'P' (and hopefully profits) at ever increasing levels of demand.

 

[CADsortaGUY]

Originally posted by: Bowfinger
Not necessarily. The Econ 101 part is that a competent business always sets prices to maximize profit. Prices are set to that sweet spot on the supply vs. demand curve where increased prices results in lost sales and lower profits; decreased prices also reduce profits because increased sales are not enough to offset reduced profit margins. Maximizing profit means finding the "just right" price.

For a business, an "income" tax is a tax on profits. Profits go to business owners, whether they be proprietors or share holders. A business income tax reduces net profit, meaning it reduces the total money going to the business owners. Naturally the owners may want to increase prices to compensate for the profit taken by taxes. If the business is competently managed, however, they've already set prices to maximize profits. Increasing prices due to taxes would therefore have the opposite effect, actually reducing profits even more.

Real world economics are a bit more complex than that, of course, but the bottom line is most businesses have a limited ability to raise prices to offset income (profit) taxes.

Except that ignores the very real situational change created by increasing a tax. Not only will company A be affected but also Company A's competitors. So when the tax increase takes place they will all adjust thereby adjusting the market rates of their product/service. Basically that "sweet spot" will move due to the intervention of non-supply/demand forces - in this case gov't interference via taxation.

 

[justly]

Originally posted by: heyheybooboo

Originally posted by: PaperclipGod
I was thinking about this today, and I'd like to hear everyone's thoughts.

Is there ever a situation where a business would not pass a tax on to the consumer? How could it do so? How is a tax on business (businesses that sell staple goods, at least) not just an indirect tax on the consumer?

Wouldn't a tax system which only taxes luxury items and doesn't tax stuff like groceries, gas, and income make more sense? i.e., if you want things that a middle-class person cannot afford (or rarely afford), then you must pay a tax for that right.

Although, then there's the problem of who gets to decide what "luxury" is defined as.

Demand Curve

Businesses do not 'pass on' their cost of taxes any more than they reduce prices when taxes are cut.

The consumer is the ultimate 'decider' at the price point that tickles their fancy. A business will maximize 'P' (and hopefully profits) at ever increasing levels of demand.

I think you need to look a little further down that link to the "supply curve shifts" where it says.

"If the quantity supplied decreases at a given price, the opposite happens. If the supply curve starts at S2, and shifts inward to S1, the equilibrium price will increase, and the quantity will decrease."

If taxes are raised that cost does have to be accounted for, and is often incorporated in the total cost to the consumer (an obvious example is gasoline, where the price at the pump is the same as what you pay the cashier, the tax is hidden to the consumer but is still part of the price).

A company may choose to gradually implement the added cost to consumer to make their product more competitive in the short term, but eventually it will show up in the cost of the product. This means that overall costs for the same product go up fore the same quantity of products being produced, in other words "the quantity supplied decreases at a given price" does this phrase look familiar, it should if you read what I quoted above.

 

[fskimospy]

As others have said, businesses don't always increase prices just because a tax went up just like they don't always reduce prices when a tax goes down. Some of the taxes levied on business are passed on, some aren't, it all depends on the situation. Because 100% of taxes aren't passed on, taxing business makes sense.

 

[BoomerD]

Using the OP's theories,

Why do we tax individuals? Since businesses just pass taxes on to us in the form of increased prices, just tax businesses and not the individuals. :roll:

I am one of those people who think that taxes should be on profits, NOT on wages/salaries though. Doesn't matter the source of the profit...it all gets taxed at the same rate.

Of course, I know it'll never work like that...we peons don't have enough influence with the fine folks in the hallowed halls of Congress.

 

[mugs]

Originally posted by: PrinceofWands
I think the best solution is to not allow businesses to have income. Businesses aren't people, they aren't real, and shouldn't be taxed. Any money that a business makes is earned by someone, even if they turn around and put it back into the business. I believe firmly that every dollar that's made should be attached to a single individual, who is then responsible for the tax on it.

You firmly believe a lot of things that don't make very much sense.

 

[MovingTarget]

Hmmm.... I could support not taxing businesses, however, only if we stop treating businesses as individuals under the law.

 

[BladeVenom]

Taxing businesses is a way to hide how much taxes are paid by the people. When business taxes go up and prices go up, ignorant people blame the businesses and not the politicians.

 

[PaperclipGod]

Originally posted by: eskimospy
As others have said, businesses don't always increase prices just because a tax went up just like they don't always reduce prices when a tax goes down. Some of the taxes levied on business are passed on, some aren't, it all depends on the situation. Because 100% of taxes aren't passed on, taxing business makes sense.

How is that possible? Where is the business going to get the money to pay the tax increase without raising its prices?

 

[winnar111]

Originally posted by: CADsortaGUY

Originally posted by: Bowfinger
Not necessarily. The Econ 101 part is that a competent business always sets prices to maximize profit. Prices are set to that sweet spot on the supply vs. demand curve where increased prices results in lost sales and lower profits; decreased prices also reduce profits because increased sales are not enough to offset reduced profit margins. Maximizing profit means finding the "just right" price.

For a business, an "income" tax is a tax on profits. Profits go to business owners, whether they be proprietors or share holders. A business income tax reduces net profit, meaning it reduces the total money going to the business owners. Naturally the owners may want to increase prices to compensate for the profit taken by taxes. If the business is competently managed, however, they've already set prices to maximize profits. Increasing prices due to taxes would therefore have the opposite effect, actually reducing profits even more.

Real world economics are a bit more complex than that, of course, but the bottom line is most businesses have a limited ability to raise prices to offset income (profit) taxes.

Except that ignores the very real situational change created by increasing a tax. Not only will company A be affected but also Company A's competitors. So when the tax increase takes place they will all adjust thereby adjusting the market rates of their product/service. Basically that "sweet spot" will move due to the intervention of non-supply/demand forces - in this case gov't interference via taxation.

Just look what happens when the cigarette tax goes up.

 

[JEDIYoda]

Originally posted by: PaperclipGod

Originally posted by: Farang
There are universities that will answer your questions in detail in Econ 101.

Oh, I'm sorry, you must be confused -- I figured that since I was asking a 5 line economics question in a forum dedicated to computers it'd be pretty obvious that I wasn't looking for a detailed answer.

I often forget that we share these forums with the mentally handicapped, I'll try to be more sensitive in the future.

Exactly!! That was the correct answer!!!