Cactus asks about Passing on Corporate Taxes to Consumers

by cactus

Passing on Corporate Taxes to Consumers and the Bail-Out

There seems to be relatively irrational belief among many conservatives that corporate taxes are simply passed on to consumers in the form of higher prices. It leaves out the obvious – if companies felt they could simply raise prices, they’d do it whether there were taxes or not. After all, why leave money on the table? Conversely, if they feel the consumer is already paying as much as the consumer is willing to bear, they’ll be very careful about passing on any increases in their own costs, and if there are any new costs (including taxes) they’ll probably absorb the bulk of them. Put another way – he who is desperate pays, and he who is more desperate pays more. If the seller’s supply curve is more inelastic than the buyer’s demand curve, the seller will absorb more of the taxes – even taxes on the buyer. If the buyer’s demand curve is more inelastic, the buyer will absorb of taxes, including corporate taxes.

Not that logic or empirical observation means much to the folks who believe this particular irrational belief. If they did, the belief wouldn’t be irrational, after all. But it does raise a question – given recent events, how come we aren’t seeing anyone arguing the flip side of the coin, namely that a subsidy (i.e., a negative tax) on corporations will be passed on to consumers? Shouldn’t one of the proponents of the notion that “corporate taxes should be eliminated because they’re paid for by consumers anyway” be telling us that by dumping untold trillions of dollars into assorted corporations, all of us who are unconnected with those corporations are going to collectively see our incomes increase by that amount? What am I missing?
by cactus