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Transportation Costs


Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

Indirect taxation costs the real tax-payers much more than the government receives, partly because the middlemen through whose hands taxed commodities pass are able to exact compound profits upon the tax,8 and partly on account of extraordinary expenses of original collection;9 it favors corruption in government by concealing from the people the fact that they contribute to the support of government; and it tends, by obstructing production, to crush legitimate industry and establish monopolies.10 The questions it raises are of vastly more concern than is indicated by the sum total of public expenditures.

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.

9. "To collect taxes, to prevent and punish evasions, to check and countercheck revenue drawn from so many distinct sources, now make up probably three-fourths, perhaps seven-eighths, of the business of government outside of the preservation of order, the maintenance of the military arm, and the administration of justice." — Progress and Poverty, book iv, ch: v

10. For a brief and thorough exposition of indirect taxation read George's "Protection or Free Trade," ch. viii, on " Tariffs for Revenue."

Whoever calmly reflects and candidly decides upon the merits of indirect taxation must reject it in all its forms. But to do that is to make a great stride toward accepting the single tax. For the single tax is a form of direct taxation; it cannot be shifted.11

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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper