When we tax wages, we get fewer jobs and fewer workers and less production.
When we tax sales, we raise the price of products, without also increasing
the return to workers. Demand drops.
But when we tax something that is not manmade, we don't raise its price, and
we don't reduce the supply of that item. We simply collect from he who owns
it some portion of its value as our common treasure, which doesn't seem the
least bit unjust, since he didn't create it.
Note 8: A tax upon shoes, paid in the first instance by
shoe manufacturers, enters into manufacturers' prices, and, together with
the
usual rate of profit upon that amount of investment, is recovered from
wholesalers. The tax and the manufacturers' profit upon it then constitute
part of the wholesale price and are collected from retailers. The retailers
in turn collect the tax with all intermediate profits upon it, together
with their usual rate of profit upon the whole, from final purchasers — the
consumers of shoes. Thus what appears on the surface to be a tax upon shoe
manufacturers proves upon examination to be an indirect tax upon shoe consumers,
who pay in an accumulation of profits upon the tax considerably more than
the government receives.
The effect would be the same if a tax upon their leather
output were imposed upon tanners. Tanners would add to the price of leather
the amount of the tax, plus their usual rate of profit upon a like investment,
and collect the whole, together with the cost of hides, of transportation,
of tanning and of selling, from shoe manufacturers, who would collect with
their profit from retailers, who would collect with their profit from shoe
consumers. The principle applies also when taxes are levied upon the stock
or the sales of merchants, or the money or credits of bankers; merchants
add the tax with the usual profit to the prices of their goods, and bankers
add it to their interest and discounts.
For example; a tax of $100,000 upon the output of manufacturers
or importers would, at 10 per cent as the manufacturing profit, cost wholesalers
$110,000; at a profit of 10 per cent to wholesalers it would cost retailers
$121,000, and at 20 percent profit to retailers it would finally impose
a tax burden of $145,200 — being 45 per cent more than the government
would get. Upon most commodities the number of profits exceeds three, so
that indirect taxes may frequently cost as much as 100 per cent, even when
imposed only upon what are commercially known as finished goods; when imposed
upon materials also, the cost of collection might well run far above 200
percent in addition to the first cost of maintaining the machinery of taxation.
It must not be supposed, however, that the recovery of indirect
taxes from the ultimate consumers of taxed goods is arbitrary. When shoe
manufacturers, or tanners, or merchants add taxes to prices, or bankers
add them to interest, it is not because they might do otherwise but choose
to do this; it is because the exigencies of trade compel them. Manufacturers,
merchants, and other tradesmen who carry on competitive businesses must
on the average sell their goods at cost plus the ordinary rate of profit,
or go out of business. It follows that any increase in cost of production
tends to increase the price of products. Now, a tax upon the output of
business men, which they must pay as a condition of doing their business,
is as truly part of the cost of their output as is the price of the materials
they buy or the wages of the men they hire. Therefore, such a tax upon
business men tends to increase the price of their products. And this tendency
is more or less marked as the tax is more or less great and competition
more or less keen.
It is true that a moderate tax upon monopolized products,
such as trade-mark goods, proprietary medicines, patented articles and
copyright publications is not necessarily shifted to consumers. The monopoly
manufacturer whose prices are not checked by cost of production, and are
therefore as a rule higher than competitive prices would be, may find it
more profitable to bear the burden of a tax that leaves him some profit,
by preserving his entire custom, than to drive off part of his custom by
adding the tax to his usual prices. This is true also of a moderate import
tax to the extent it falls upon goods that are more cheaply transported
from the place of production to a foreign market where the import tax is
imposed than to a home market where the goods would be free of such a tax — products,
for instance, of a farm in Canada near to a New York town, but far away
from any Canadian town. If the tax be less than the difference in the cost
of transportation the producer will bear the burden of it; otherwise he
will not. The ultimate effect would be a reduction in the value of the
Canadian land. Examples which may be cited in opposition to the principle
that import taxes are indirect, will upon examination prove to be of the
character here described. Business cannot be carried on at a loss — not
for long. ... read the book