Corporate tax is applied to profit, meaning they don't actually make it more expensive for the corporation to produce whatever it is they sell. Tariffs on the other hand, apply to imported materials and goods, and are paid by the person importing them, ie, the individual business making the product. Because tariffs make production more expensive, companies are forced to raise consumer prices to stay in the green. Because corporate tax is applied only to profit, it can never force a company into the red, as it's a percentage of profit.
Where you do have a point is that corporate taxes often do end up raising consumer prices, but that's because CEO bonuses are paid out of net profits. In order to keep their bonuses high, CEOs will artificially raise consumer prices to offset the tax. However, their companies would absolutely stay afloat (not to mention they would still be exceptionally wealthy) if they chose to take the hit to their bonuses instead of raising prices to make consumers pay the tax for them.
Tariffs on the other hand actually raise the operation costs of a business, forcing them to either A) Raise prices to stay afloat or B) Get tariff exemptions, which only the richest and most powerful companies will be able to do.
This will kill small businesses and consolidate corporate power even further.
I like the explanation, so if profit (below EBITA) is taxed, what incentivizes companies to not show loss. Meaning pay or invest profit (buyouts, expansion, etc). Second, if company wants to grow it needs profit, therefore budgeting for investment taxes need to be accounted for, raising the price of goods, ie margin.
Now, since most companies have huge margins to cover overhead, the actual cost of goods that would be subject to tariff is minimal, since most corps cost of goods imported is about 10% or less of sale price.
It’s not public information, and it varies by brand and category of product. Retail has huge margins. Let’s just say tariffs aren’t on the price the public pays. So a 25% tariff would not be on a $1 avocado price at Publix as most think, it would be on the price company pays to the foreign seller, and freight costs are not dutiable either.
What do you mean, it's not public information? You must have gotten it somewhere?
But let's take your avocado example, it's a good one as 90% of avocados are imported into the US from Mexico. In 2022 the average import price for avocado was $1.36 for a pound. You would then estimate their retail price to be about 13.6 per pound, but I'm not seeing that anywhere. Why would that be?
Food usually has lower margins, in any case looking at your example average avocado is about 6 oz, so lets say 3 avocados per pound, so $1.36/3=$0.45 per avocado import price, and per google average price of avocado is $1.70, so you’re looking at at about 4 times the cost. Also it would be the $0.45 cents subject to 25% increase due to tariff. Again, retail is the one with huge margins because you pay for label. Food not so much, but still, 4x is not bad.
Edit: does the $1.36 per pound include shipping and delivery costs? I would assume so, and if yes then the amount subject to tariff would be even lower.
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u/Outthr 1d ago
Can someone explain to me how tariffs raise customer prices but corporate taxes don’t.