Isn't it an easy solution though? Based on what you've said, companies have likely already done what they can to reduce expenses to what they consider an optimal place.

I'll try an example, although that might not be totally valid (I'm not really up on current tax laws). These are all made-up numbers and rates: Say you sell a widget for $100, and it costs you $70 to make. Your profit on that is $30, of which let's say you pay $5 in taxes, so let's say you walk away with $25 per widget.

If the government bumps up the taxes by a percentage that makes the tax be $6. As a corporate policy, the easiest way to keep the same returns to investors is to tack on another dollar to the price and sell it for $101. Profit is $31, pay $6 in taxes, still walk away with $25/widget.

Your competitors are in the same boat as you are, regardless of what the tax rate was/is. Theoretically, if they weren't stealing your business at the lower tax rate, they won't steal it any more or less at the higher tax rate.

Sure maybe you consider some other areas to cut costs, but haven't you done that already? I know it's a silly over-simplified example, but if I own a company and I don't want to give back my profit, I raise my prices to compensate, and so do all competitors. The people that lose are the customers.

I see the rationale in that argument, but I think one of the things you're missing is that companies won't just automatically raise their prices in unison.

Smart companies may hold their prices constant and take a per unit profit hit to capture more share, allowing them to maintain or even increase overall profit. They may introduce higher margin products and/or develop entirely new strategies or lines of business.

And that is the free market mechanism that I mentioned: each company must adjust to the new reality and try to use it to gain an edge over its competitors. They do this all the time.

And, given this new incentive to maintain profits, they may be more aggresive in finding cost reduction elsewhere. One might argue that companies are doing all they can now, but you might be surprised at how new realities create new incentives.

The other important thing with returning shareholder value is how Wall Street works. It is very much a time-relative game. For example, how did the company do vs. last quarter or same quarter last fiscal year? Viewed this way, you can see why some companies pump the brakes on all out profit-maximization over a given timeframe, instead opting to ensure that the line keeps moving up and to the right over a longer period. So, it's more complicated than all companies are always maximizing profit at all times.

Finally, your example that the easiest thing to do is to raise the price by, say, $1 doesn't really hold, irrespective of what direct competitors do with their pricing. They must still keep prices in line with what the market will bear. If not, consumers may begin looking for substitutes or go without (depending on the product). So, while it might be the simplest thing for a company to try, it might not be accepted by the market.

This is all part of the free market at work. So, your simplification is tempting, but I think it goes back to creating that vacuum I mentioned, ignoring all of the many market variables that countervail the assumption that $1 in increased "cost" equals $1 in increased price.

If the market has reached the pre-tax equilibrium, would an added evenly-applied tax change competitiveness at all? I guess I don't see how that would change anything at all. If you and I are competitors, and we both pay the same tax rate, that's already factored into our businesses in some way. Sliding it up or down an equal amount on both of us won't change the me vs. you competitiveness right?

I get what you're saying regarding only pricing what the market will bear, but on the flip side of all this, consumers suddenly have more money, so I could make the argument that the consumers are willing to pay more because they suddenly have more in their pockets, and around the mulberry bush we go...

>would an added evenly-applied tax change competitiveness at all?

Any variable can change competitiveness, as companies may differ in their responses to it.

For example, look at fuel prices for airlines. When they increase across the board, some airlines may raise prices, others may cut back on services offered, still others may add baggage fees, some may focus on increasing volume on more profitable routes, some may lower prices and heavily promote their lower fares to gain market share, while others may risk prepaying for fuel at current prices or hedging with shorts, etc.

Point being, of course, that the same change that hits every competitor will produce different responses and effects. This can completely alter the competitive landscape. And, it's virtually a guarantee that you won't simply get some uniform, across the board price increase.

If we don't acknowledge this, then we are looking at the change in a vacuum, completely insulated from the realities of free market behavior.

>I could make the argument that the consumers are willing to pay more because they suddenly have more in their pockets

Yeah, I think I actually mentioned that in another post (too much risk/work to view another post mid-reply on this tablet). Anyway, it could definitely be the case that consumers can bear more, however, it is not neccesarily 1:1. That is, there are a lot of variables that might impact whether they'd be willing to spend that extra money on that product. Also, there is still some price that the market simply won't bear for a given product, irrespective of the extra money in consumer pockets. In any case, there is certainly no guarantee that companies can simply pass on the additional cost.

And, it can also be the case that some companies can, but others cannot, given their prior prices.

Just too many variables.

What if no one buys your widget for $101? You'll bring the price back down to $100 very, very quickly.

> reduce costs elsewhere

Like by hiring less employees.

Possibly. Unless the tax code gave them incentive to cut costs elsewhere instead. I would guess such incentive to be logical, given the problem they're trying to solve.

In any case, one of the big premises of the article is that hiring less is happening anyway and contributing to the need for a basic livable income. So, that's a bit circular.

And, of course, that's just one of many potential cost-cutting measures.

Good thing we've got BI then, so we're no longer slaves to making any move at all because it might cost someone a shit minimum wage job.

> Raised taxes represent an additional expense (for the purposes of this discussion)

Raised income taxes aren't really an additional expense, because they are taken out of after-tax net income, not gross income. That complicates the analysis substantially.

This is precisely the reason I don't understand it when people say the cost of the tax will be passed onto consumers. What cost? The tax is on profits...

You may see it that way, but most businesses do indeed see tax liabilities as a cost of doing business. Just because the profits are taxed doesn't mean it's not a cost of some sort. For instance, you could say today's taxes are the cost of doing business next year or even quarter.

But mathematically taxes don't behave like costs.

Depends on how the company applies the math. If a company wishes to treat tax liability as a cost of doing business, I fail to see how that couldn't be done.

I am aware of how the accounting works, technically, which is why I added the parentheses.

Perhaps you can provide more detail as to how you think it changes the analysis in the context of this discussion.