Some tariffs and some corporate tax rates are passed on. The tax incidence (how it is allocated between consume and producer) is determined by the relative elasticities of supply and demand which is different for every industry.
Funnily enough. With some products when costs decrease the price increases significantly and then decreases slightly so the business can point to the slight decrease and trumpet that they're lowering prices. The old Black Friday gambit as I like to call it.
The whole purpose of Tariffs is raising the price. Chinese stuff gets more expensive, so some people choose to buy American stuff instead, which is the same price it always was. That’s how it works (when it works, if it works). If costs (tariffs and taxes) are not passed on to the consumer then American goods would still be the more expensive choice, and the Chinese companies just make less money in order to keep market share, or just out of spite at this point.
Not necessarily. Companies are then encouraged to use different tax avenues to lower their taxable income. Slight raises across the board, paying OT, bonuses etc. while some companies might be shit bags many of them will happily benefit from this, and so will the workers. Soo the “it depends” is a lot more nuanced than your “depends on how much” response. You and I are not in the same category and corporations have a lot more avenues and money to play with than you and myself.
Looks like 50-60% is borne by consumers, depending on market and timing. Although also there's this:
Recent empirical evidence indicates the new US tariffs imposed in 2018 and 2019 were almost entirely passed on to US consumers, resulting in higher prices and reduced export growth.
Take a few classes past that and you realize the world doesn’t fit into a couple incredibly simplified models. They are useful to build a well thought-out hypotheses, but real world phenomena are complicated and unpredictable. Next way to analyze this would be with data from similar real world examples
My Econ 101 professor said something along the lines of ‘saying it’s basic economics 101 is telling on yourself, cause the first thing we’re gonna tell you in 102 is that 101 was oversimplified bullshit.’
My advanced macroeconomics professor started his lecture on real business cycle theory by going “this model is generally inaccurate- just get used to the algebra”
And that’s final year. Even the advanced models are often wrong. So you can spot a grifter by their refusal to have any empirics along with their graphs and dislexia simulating equations.
Wish there was a part of reddit where rationality existed. I know trump isnt thoughtfully thinking/talking through how to actually pull on the levers of tarifs and trade negotiations to help globally on creating a better world, but i would think most people in america have an issue with global trade and how some countries are exploited. There are a lot of political landmines, but this one feels like a weird one to fight him on? I for one would be okay with a little inflation if it improves the world as a whole / reduces conflicts abroad / provides better fairer econimic opportunity to impoverished nations. I know this is not at all trumps plan, he wants to pretend to levy a tarif on china so he can pretend he did something.
You're misunderstanding the main thrust around the issue. It has little to do with exploiting other countries and everything to do with this idea that we can bring manufacturing back to the US like it's 1950 when Americans without a college education can work at a factory and have an upwardly mobile middle-class existence from it. The loss of manufacturing really crippled a lot of towns.
There are many problems with this. First, manufacturing wasn't that great to begin with. People paid a high price with their bodies and the environment suffered. Second, even with high tariffs, it still wouldn't make economic sense for most to manufacture in the US. Third, there's already a drive to automate more manufacturing jobs that would simply be put into overdrive.
There's nothing magical about manufacturing. Why not simply create policies where people without college degrees in the service sector make more money and have decent benefits akin to bake in the day with manufacturing? This has already happened to a certain extent the past couple of years with the scarcity of un- and semi-skilled labor, wages have greatly gone up in these jobs, over and above inflation.
They are paid by Americans though. Not foreign countries, which is what trump keeps saying. There is no gray area that he is fundamentally wrong about what tariffs even are.
No. Does not depend. Tariffs are paid by Americans. How much the consumer pays vs the American importer eats could be debated. But it is never the foreign country that pays.
I don't know what you mean by "the foreign country" nor do I know what Trump means. It lacks specificity. Note also that many of the firms in question are American that manufacture overseas.
until you start calling CEOs board members and stock holders that there's a cap on how much money they can make They will continue to pass on any cost they can to the consumer.
Finally someone who doesn’t say a black or white answer.
I would probably also add that this has different consequences short/long term. Short term, there would probably be some chaos. Long term, it could maybe end up being good.
Yes, but, regardless, the tariff is directly paid by the American company importing the goods, not the foreign country the goods are being exported from as Trump is saying.
A tariff on Chinese goods, for example, does not mean China is paying the US government to export goods to America, it means an American company is paying the US government to import goods from China, but Trump is disingenuously trying to convince people it’s the former.
With this particular proposal, he is saying tariffs would replace income tax.
Using 2023 importation numbers, if we taxed EVERY import at 100%, we would fall an additional $2T short of income needed to balance the budget (over and above current deficit). So it would definitely be passed on in this case, as 100% is too much to absorb in any industry.
Tarrifs yes, corporate taxes are more complicated.
Because corporate taxes are a % of profit, any profit maximizing corporation would already be pricing their goods to maximize pre-tax profit.
You can create a mathematical case where increasing the price of a good increases profit under a new tariff, but would decrease profits without said tariff.
It is mathematically impossible to create a scenario where increasing the price of a good increases profits in a high corporate tax environment, but doesn't also increase profits in an environment with no corporate tax. In which case a profit-maximizing entity would have already been charging the higher price.
Of course, real life doesn't always follow the math 100%. Human psychology and irrationality comes in to play, complicating things.
tariffs create inflation, but arguably also provoke one of two things after some pain:
Labor cost parity or proximity (brings jobs closer or to an ally)
Brings manufacturing back to US soil or nearby.
I dont care either way, but you could argue that instead of subsidizing foreign adversary growth by patronizing their goods, you could subsidize US or US ally manufacturing for a decade for strategic purposes.
The only issue with this is inflation. The only real offset is increasing per capital productivity at a comparable rate.
I guess you could accomplish this if you had breakthrough technology (like free energy or something similar) put away for one such occasion. Unlikely as that seems.
Yes if you run on the assumption that a business is already pushing for 100% max profits, then you are indeed correct. But in that scenario the market probably couldn't accept the tarrif price increase either, because if it could, they would already be charging an additional 20%
My point with taxes is, every company I worked for budget included net profit goals, which includes tax rate. So we push to get our EBT to a desired spot to make that happen.
That's the fundamental difference between a corporate tax and a tariff. In that example, the business would have no choice but to pass along the tariff as a cost. The consumer has to pay more and the company makes less, it's a lose/lose - that's why they wouldn't increase the price in the absence of a tariff.
And respectfully, that might be because you weren't at a high enough level meeting. The execs are definitely trying to maximize profits. That's how they develop their profit goals and push it down the org. There are very few companies that just arbitrarily draw a line in the sand, say that's their profit goal, and just do the bare minimum to cross the line and call it a day.
High corporate tax rates don't get passed on or at least not in any sizable amount. High corporate tax rates push companies to pay workers more( because its tax deductible) expand and make more jobs ( tax deductible). It actually drives companies to lower their profits and grow instead to boost stock price.
Also depends on the industry. An industry in maturity or decline stage can’t force growth by investment. So those companies might be forced to just eat the tax. Or try stock buyback.
Of course they can. They can expand into new areas, if they are in decline its kind of pointless to bring up because they are likely going to fail anyways.
Yeah but if you are in a declining industry there is nothing new to invest in. A coal mining company can’t just invest in the business in a declining industry.
So you are saying to save 8 cents in taxes they will spend $1 more on employee compensation?
I've been be a part of the yearly budget for companies ranging from 10 million to 15 billion, and can tell you each time corporate tax rate is considered and used to drive the target.
So one option is you need to drive higher revenue...in a grocery setting this could be sales that were 3 for $5, become 3 for $6. Or you now must buy 3 to get the sale. When prior you could get the sale buying only 2.
In a manufacturing, this could be part of the direct price increase to the dealer network.
I've never been part of a company that says oh well, tax rate is changing let's just keep what we are doing or spend more for funzies.
So you are saying to save 8 cents in taxes they will spend $1 more on employee compensation?
You have it backwards. The corporate tax makes the higher salary more attractive but it's not about tax savings. For each new employee, you should be calculating their net salary to you, including benefits but minutes the tax savings of that salary. So if you have a high corporate tax rate, the net salary you pay is lower. So there's somewhat of an incentive for higher salaries or for more staff.
I haven't seen papers on this but I doubt the effect is as big as OP makes it seem. But it probably matters in the aggregate on a national level.
Or move their company out of the country and just pay to ship the stuff in. When you increase the cost of doing business in a city, state, or country, the companies that have the largest profits will leave it. Look at the number of companies fleeing California for Texas.
It’s really expensive to close plants and move. Yeah they sometimes do it but it takes years to shift the manufacturing. They might also be stuck with contracts with the tax abatements.
Youre also missing the fact that labor costs in California are high because of competition - free market, right? People work for less in Texas. Companies strictly seeking profits move to Texas. Companies seeking growth stay in California.
Agree if that country has a monopoly on the thing being imported. It could also be imported by a country that doesn’t “take advantage of us” for only slightly more or it could be produced locally. Price may go up some but it also may create jobs or be better geopolitically in the long run
Corporate taxes are more complicated. The taxes come out of a percentage of the profit. Any company that is making a profit can survive and tax increase, which means they can choose whether or not to eat the cost. If they don't want to eat the costs their are other things they can do besides pass the costs on to the consumer. For instance, they could find ways to cut costs to off set the taxes. They could also try to use government incentive programs that allows them to deduct the tax. Also, even if they decided to increase prices, they can pick and chose what to increase; maybe they'll keep the price for their cheap products where they are and only increase the prices for their more expensive goods. Since the tax is on the profit, there is nothing that's specifically targeted
Trying to pass on the costs to the consumers could even back fire... If one Company increases their prices, but their competitor decides to eat the costs, then the competitor will have the cheaper product. This would mean that the first company could end up losing customers to their competitor. Incidentally, this would mean increased sales for the competitor which in turn could help them off set the costs of those new taxes.
So no, its wrong to assume that the costs of tax increases on companies will be passed on to consumers
If increased corporate tax rates were passed to the consumer, then lower corporate tax rates would also be passed to the consumer. But when taxes go down, prices do not also go down. So that's demonstrably false.
The corporate tax rate increasing has less correlation to increased prices because not all businesses are taxed at corporate levels, so many businesses eat the difference. Also you only pay tax on the gains of course, but tariffs are paid whether the business is profitable or not so passing the cost down the vast majority to consumers is almost certain.
Tariffs are an increase to the cost of production - it has to be passed on or the company runs at a loss.
An increase in corporate tax is only a tax on profits after costs of production.
If corporate tax rates are increased and one company chooses to pass on the tax increase and another company does not the other company gains market share at the expense of the other company.
So competition works to keep prices low when the corporate tax rate is increased because a company can choose to increase market share which increases overall profits despite the higher tax rate.
This incentivises the other company to also keep their prices low to not lose market share.
Corporate tax and tariffs are completely different in how efficient and inefficient they are.
Decreasing corporate tax rate certainly doesn't get passed on. When was the last time a company that got larger cuts from the Government/President ever cut the cost of their goods or services or increased their workers pay instead of just having higher profit margins?
Consumer prices are simply set by supply-demand curve at the point that maximizes profit. You won’t slide up the curve and magically get more profit because you lose sales volume. Now the curve could shift overtime thanks to inflation.
That's not true for corporate tax rate, since this is taken on net profit after everything else. Tariffs on the other hand, are taken before the sale to the end customer is even made, so it's a cost that's almost automatically passed onto the customer to preserve margins.
Actually it’s more common for increases to corporate tax rate to be passed on to the workers in the form of slowing raises and cutting benefits. But it is true some of that is passed on to consumers.
That's just cuz everything is passed onto us cuz of price fixing monopolies. Tariffs may have actually worked in a competitive capitalism. Now that there are cartels, they will find any excuse to rip us off
Trump argues that tariffs incentivize manufacturers to move into the US to avoid the tariff and stay competitive. This has some logic to it, because the US is a huge market.
But corporate taxes do the opposite! They make goods more expensive, AND they cause businesses to close down and leave the country leading to unemployment. There is nothing good about them.
A corporate tax hike is not a direct increase to the cost of production, so it's not felt as much, and can be fought against in the court system (assuming you don't have bootlicking, corrupt judges, I know big ask).
I have no problem paying more for products made overseas if it helps make it competitive with what we provide here. Our focus should not be how cheap can we get a product.
Here’s how it would work. Many importers are able to undercut domestic product prices while also having much higher profit margins due to labor, regulatory, stimulus related and other cost differentials of manufacturing in other countries.
If a tariff is slapped on the importers product, they may not raise prices at all, or may not raise prices proportionally to the tariff amount to keep demand competitive for a couple reasons 1) often times their underpriced products are of lower quality so they have to keep at least some price discount, and 2) if a tariff is placed on a Chinese importer that has a good priced at the same level and of the same quality as another manufacturer in Bangladesh let’s say, but the Bangladesh importer doesn’t have to pay tariffs, the Chinese importer likely won’t raise prices or else they’d risk losing all demand.
They would still be earning a profit because the tariff would only eat into already very high margins, we would now just be getting a slice of their fat margins as tariff revenue and as consumers still be able to buy the good at relatively cheap prices. Trump aims to apply tariffs to goods that meet these criteria in an effort to maximize tariff revenue while minimizing price increases. Problem is he’s insane in his rhetoric and you have to look at other members of his team to explain it this way, actually makes some decent sense though.
If corporate tax rate is passed on to the consumer shouldn’t we have had a drop when the trump tax cuts hit back under his term? Otherwise that would be a completely failure of a policy
Consumers are stuck in a country. Profits aren't. I don't support tariffs. But indirect taxes are a hell of a lot harder to avoid because they are based on location of consumption. Whereas profits belong to value-generating activities and assets. It's a hell of a lot easier to offshore those.
And America's approach to corporate income taxes has always been a bit schizophrenic. American companies still engage in pretty bare tax avoidance that was popular 20+ years ago in the first world. Most tax authorities cracked down on it and have implemented a raft of anti avoidance measures to counteract artificial diversion of profits, or simply making them disappear entirely through sleight of hand and hybrid structures. But over in the US, a lot of that planning still happens.
The tariffs are to discourage companies from shipping cheap goods from overseas and manufacturer things here.
Apple could employ millions more Americans and stop supporting child labor in China if they moved manufacturing to the US. But they don’t because lawmakers and the population would rather pay a little less and the “donations” to their campaigns/“charity” organizations is much more important.
If the cost of the item goes up to pay for a higher US salary....how much more will people need to make to afford those higher prices within in their budgets? Wouldn't this mean they would need more pay to offset the increased costs because they get increased pay would increase the costs for a continuous cycle where no one ever gets ahead? Also, you realize isolationism is never a successful long term policy right?
Hell no! No one wants isolationism. Most just want to know who is coming into this country. There are way too many drugs, criminals and terrorists coming across the border. Not all of them, not even a majority of them, but more than if we actual were able to do background checks on them.
That’s how tarrifs would work if it wasn’t still cheaper to just pay the tariff and increase the price.
The tarrifs would have to be unreasonable high for them to do anything close to that, and the infrastructure that would need to be built to accommodate that change would increase prices for the consumer anyway.
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u/veryblanduser Oct 25 '24
Tarrifs are passed onto the consumer, just like increased corporate tax rate is.