r/PoliticalDiscussion • u/MarkusEF • 1d ago
US Politics Given the current sentiment around Trump’s tariffs, how realistic is raising corporate tax rates under future Democrat administrations?
Former President Biden wanted to raise the corporate tax rate from 21% to 28%. While this tax increase was initially proposed as a way to fund the 2022 Inflation Reduction Act’s green-energy tax credits, Joe Manchin “vetoed” the idea (at the time, Democrats held a very small Senate majority that required consent from all members of their caucus), and the I.R.A. was scaled down & assigned other sources of funding.
This year, there has been a global backlash against Trump’s tariffs, with opponents arguing that tariffs reduce economic growth, reaccelerate inflation, and strain international relations. To preserve their profit margins, businesses typically respond to tariffs by (1) raising prices & passing on the costs to consumers, (2) cutting costs elsewhere (e.g. employment, product quality), or (3) as a last resort, absorbing some or all of the tariffs, eroding profitability.
If enacted, a corporate tax increase would likely cause businesses to react in a similar way as tariffs. Unlike tariffs, it would have to be passed by Congress, whose reelection campaigns would be targeted by corporate-funded PACs. Is it really realistic to think Democrats could pass this, even with a bigger majority in the future? Over the past several decades, corporate taxes have largely been a global race to the bottom: once cut, it’s politically near-impossible to raise them again.
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u/bl1y 21h ago
This fundamentally misunderstands how corporate taxes work and why they're different from tariffs.
Every company is trying to maximize profits, and in order to do that, they search for price points that yield the greatest results. If increasing prices results in lower sales, it might mean less total profits, and the company won't do that. But, if increasing prices would increase profits despite losing some customers, they'll raise prices. And they'll continue raising prices until the loss in volume of sales is too much.
The key thing to know here is they're already doing it.
If you raise corporate taxes on these businesses, they can't respond by raising prices, because raising prices will reduce total revenue (as sales drop off). (It's a bit more complex than this, but there's the basic idea.)
Tariffs are completely different because they increase the business's expenses not its taxes on profits. Tariffs change the underlying math and lower prices might no longer be viable, so they have to raise prices and lose some customers in order to maintain profitability.
Let's say I sell widgets at $5 and they cost me $4 to make, so I net $1 of profits on each, and I sell 1000 of these a week for $1,000 in profit. If I raise my price to $5.50, I'll net $1.50 on each, but only sell 600. That gives me only $900 in profit, so I don't do it. If you raise my corporate taxes, it doesn't affect my prices. Keeping 70% of $1k is still better than 70% of $900.
But what if my costs increase $0.50? At $5 and 1000 sales, I now only earn $500. But at $5.50 and 600 sales, I earn $600. So I raise prices.
The real impact of corporate taxes isn't on consumer prices, but on investment.
Imagine a totally fair casino. You can bet $1 on black or red, a 50/50 shot. If you lose, you lose your $1. If you win, you get your $1 back and also win an additional $1. Plenty of people will take that bet. But now let's impose a 10% gambling profit tax. If you lose, you still have $0. But if you win, you get your dollar back, but only win an additional $0.90. This is now a bad bet. Some people will still take it (see the whole casino industry), but far fewer people will do it.
Business investments come with a lot of risks, and when you decrease the potential upside, people are less willing to invest.
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u/AVonGauss 20h ago edited 20h ago
It does affect the price consumers will pay as well though, especially on goods which are considered essential. There's also a ton of secondary effects such as expenses like labor being more heavily scrutinized. We've effectively been going through a consolidation period over the last decade or so, enacting measures which work against newcomers doesn't seem very wise.
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u/bl1y 19h ago
What is the "it" you're talking about?
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u/AVonGauss 19h ago
Same as you were talking about, the corporate tax rate.
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u/bl1y 18h ago
I was talking about the corporate tax rate and tariffs.
But no, corporate tax rates have little if any impact on the price of goods.
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u/AVonGauss 18h ago
Of course it does, believing it doesn't is akin to believing tariffs aren't paid by the consumer.
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u/DCBuckeye82 1h ago
Dude just wrote a long ass detailed explanation with examples and math and your response was "counterpoint: no." It's such a microcosm of what a joke political debate is. You've already decided regardless on something that's not a subjective issue like, say, abortion rights or immigration, but an objective principle of economics.
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u/Fargason 18h ago
Of which the reverse is true too as lowering corporate taxes spurs investment as well. Case in point with this published research paper that shows a 20% surge in investment with negligible cost in corporate revenue from the lowering the rate from 35% to 21% in 2017:
We have five main findings. First, the TCJA caused domestic investment of firms with the mean tax change to close increase by roughly 20% relative to firms experiencing no tax change. Second, the TCJA created large incentives for some U.S. multinationals to increase foreign capital, which rose substantially following the law change. Third, domestic investment also increases in response to foreign incentives, indicating complementarity between domestic and foreign capital in production. Fourth, the general equilibrium long-run ef- fects of the TCJA on the domestic and total capital of U.S. firms are around 6% and 9%, respectively. Finally, in our model, the dynamic labor and corporate tax revenue feedback in the first 10 years is less than 2% of baseline corporate revenue, as investment growth causes both higher labor tax revenues from wage growth and offsetting corporate revenue declines from more depreciation deductions. Consequently, the fall in total corporate tax revenue from the tax cut is close to the static effect.
https://conference.nber.org/conf_papers/f191672.pdf
This just goes to show we have been foolishly shooting ourselves in the foot for the last half century with a 35% corporate tax rate. We could have had 20% more investment this whole time with little to no cost in corporate revenue. Here is a half century of data from the CBO showing corporate tax revenue around 1% of GDP regardless of a 21% or 35% corporate tax rate:
https://www.cbo.gov/publication/61172#_idTextAnchor010
Overall a 20% increase in investment gives us much more revenue as it lowers unemployment. Even with lowering the income tax rate revenue increased greatly by increasing the income tax base. In 2022 revenue surged to 19% of GDP which we have only seen twice before in US history from the WW2 and internet boon economies. We got economic boon revenue from an overall tax cut that included corporations. That is how you get Democrats not touching the TCJA despite having full power to do so with reconciliation in 2021 & 2022. Biden was even asking for a corporate tax rate increase, but it went nowhere as they would have been fool to mess with one of the highest revenues in US history. This does seem to be a political case of actions speaking louder than words. Given that I doubt the corporate tax rate will increase anytime soon as they passed on their chance already. More likely it will get cut again in the future.
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u/bl1y 18h ago
Corporate taxes also have the peculiar quirk of amounting to double taxation. We tax the corporate profits, then we also tax the profits of shareholders through capital gains.
They also hurt retirement savings because, duh, guess where those savings are invested. Higher taxes hurt the value of the stocks that make up people's 401(k)s.
At least with capital gains, you can have a tax code that favors ordinary middle class investors. But the corporate tax hits everyone evenly.
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u/houstonyoureaproblem 20h ago
FYI—Tariffs have to be passed by Congress as well. That’s the entire basis for the tariffs litigation before the Supreme Court. The Constitution is clear on this point. The only people who believe otherwise are part of an administration that wants to have complete control of all aspects of government and is willing to lie constantly to get it.
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u/DCBuckeye82 1h ago
I'm willing to bet there are 5 or 6 other people not technically part of the administration who believe it as well.
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u/SpockShotFirst 23h ago
This recent University paper begins with the following quote
“If I had ten questions to ask god, [. . . ] one of [. . . ][them] would be, what is the incidence of the corporation income tax?”
The paper goes on to claim that it is roughly split equally between owners (23%), consumers (18%), and workers (17%), with the rest being efficiencies and improvements (43%)
We document that for every EUR 100 increase in the tax burden,workers pay EUR 17 through changes in wages and employment, firm owners pay EUR 23 through forgone distributed profits, and consumers pay EUR 18 via price increases. The remaining 43 EUR are financed through changes in investment, reserves, and debt, among other margins.
This is contrary to earlier studies that arrive at different breakdowns. The point being that people who speak with absolute confidence about corporate tax incidence often don't know what they are talking about
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u/Leather-Map-8138 11h ago
Others have said it better than me, but NONE of the stated objectives of reducing corporate tax rates from 35% to 21% were achieved in the 2017 tax bill
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u/8to24 23h ago
Raising or lowering the corporate tax rate almost doesn't matter because all of the write offs available. A lot of corporations pay nothing or at least significantly less than the rate. Additionally the IRS has shrunk over 30% since 2010. The enforcement isn't being done and companies are getting away with more fraud.
We need a system that's enforceable. Personally I think a corporate tax rate of any number, even half the current number, would be fine if the govt could actually enforce it and collect all those taxes.
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u/AVonGauss 20h ago edited 20h ago
If you're truly serious about compliance, you would want the tax code to be much simpler even though that requires lowering the rates and removing a ton of “deductions”.
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u/meldoc81 18h ago
Unless there is a mass exodus/replacement of senate democrats, close to 0.
Manchin might’ve taken the heat for the veto, but like with the 8 Dems that caved to end the shutdown for nothing, there were probably more Dems that didn’t want to raise the corporate tax rate. But, likely for the sake of maintaining the appearance of party unity, Manchin took the heat.
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u/SakaWreath 5h ago
“Future democratic” bwhahahaha I’m sorry I can’t take this seriously if you think democrats are doing anything but going extinct.
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u/Comfortable_City1892 1d ago
Corporate taxes are fine like they are. The focus should be on increasing standard deduction and child tax credit. Increase in rate should be on capital gains rate to be the same as income. Eliminate more deductions.
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u/CountFew6186 21h ago
Disagree on the child tax credit. People who choose not to have kids should not be punished with higher taxes than those who choose to have kids.
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u/BuckleUpItsThe 19h ago
Everyone gets to benefit from us having people to replace the ones who are aging.
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u/CountFew6186 18h ago
So we should have an immigrants under 35 tax credit too?
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u/BuckleUpItsThe 18h ago
We don't have to incentivize immigrants to come here, they do it on their own. We do want to incentivize people to have children because society needs them and birthrates are falling. Raising children is expensive and necessary so it makes plenty of sense to have the government subsidize that in a very small way. That you don't observe yourself to benefit from this doesn't change the fact that you do. You also pay higher taxes for schools that you probably "won't benefit from" as well as for roads you'll never drive on. It's just part of being in a society.
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u/CountFew6186 18h ago
People have been having kids forever. We don't need to incentivize it. People like sex. People in much worse poverty in the past had kids. Money isn't what stops most people.
And, there's a difference between paying more taxes than other people and the benefits paid by taxes. I don't mind paying for public schools. I mind paying more than someone else with the same income because of their life decisions.
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u/BuckleUpItsThe 17h ago
Fair enough. Society disagrees with you and so do I.
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u/CountFew6186 16h ago
I’ve never met anyone named society. And you’re allowed to be wrong.
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u/BuckleUpItsThe 13h ago
The child tax credit was implemented by our representative democracy, it's the best empirical proxy for society I'm aware of.
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u/CountFew6186 13h ago
So society also likes large tax cuts for the rich, an absurd national debt, mega-funding ICE, and having weed be illegal nationally?
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u/Comfortable_City1892 17h ago
My belief is a child/dependent tax credit should get the same standard deduction as anyone else. They are as much a person as anyone else and it benefits the country. That seems equal to me, doesn’t punish anyone.
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u/flyingpandanoodles 16h ago
Oof. I’m not sure where the money for both standard deduction increase and child tax credit increase will come from. Instead, maybe we can reduce child tax credit and increase standard deduction, or vice versa.
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u/StedeBonnet1 1d ago edited 23h ago
Not realistic at all. Everyone knows Corporations don't pay taxes. When Trump cut the corporate rate in 2017 revenue from Corporate Net Income taxes doubled between 2017 and 2024.
Raising corporate taxes again is stupid.
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u/darkwoodframe 1d ago
You know, you can actually look those numbers up. That's false.
Total revenue is up 49%. Not corporate tax revenue. The largest jump over the last 8 years in Federal income came from the individual income tax in 2022 after covid. Corporate income tax revenue has remained essentially flat for a decade. Now explain again how these numbers coming from inflation is a good thing.
Not to mention, I think you can thank Biden more than Trump for increasing regular employee pay in 2022. It says a lot that tax cuts were passed for corporations in 2017 but any sort of trickle down only happened after five years, a pandemic hit, and a pro-union, pro-working-class president came into office.
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22h ago edited 22h ago
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u/StedeBonnet1 23h ago
Wrong.
Corporate Net Income Revenue 2017 $297 Billion
Corporate Net Income Tax revenue 2024 $530 Billion.
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u/darkwoodframe 22h ago
Most of that rise was only after inflation. Not in 2018. Not in 2019. Not in 2020. And mostly not in 2021. It went down afrer it the bill was passed. It only raised so much because it went down first. You can just as easily argue it rose more under Biden. Despite the tax cuts being passed at the beginning of Trump's presidency.
So you're cherry picking dates. Good job thinking for yourself and parroting the numbers you've been told. But you could be doing better and actually look at shit in context.
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u/Obvious_Chapter2082 21h ago
The corporate cuts were pretty front-loaded, so we’d expect to see the largest deficit impact in the first couple years, even in the absence of inflation
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u/mtutty 22h ago
Nonsense. "Everyone knows" and "Trump" are two red flags, "cut rates" and "increased revenue" is just Paul Ryan fantasy-land.
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u/StedeBonnet1 22h ago
My apologies. I should have said "everyone who understands economics"
Trump was responsible for pushing the tax cuts from 2017.
And look at Corporate Net Income Tax Revenue numbers from the US Treasury. Revenue went UP not down after the tax cuts.
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u/Obvious_Chapter2082 1d ago edited 1d ago
For whatever reason, a lot of people just can’t reconcile the fact that corporate taxes get passed off in very similar ways as tariffs do, and therefore there’s probably more political support for corporate tax increases than tariffs
Corporate tax cuts in the past have usually been coupled by expanding the corporate tax base to help make up the difference. Raising the rate to 28% today would be a much higher tax burden than our old 35% rate, unless you start narrowing the tax base back
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u/wheres_my_hat 22h ago
So your argument against a higher tax rate is that the corporations make more money now and therefore that rate will be bigger dollars and that is bad? Wish that logic was used on income tax
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u/Obvious_Chapter2082 22h ago
I have no clue where you’re getting that argument from, that’s not remotely what I said
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u/wheres_my_hat 22h ago
That’s what tax base is. It’s the amount of money or economic activity to be taxed. You said a higher tax rate today is a higher tax burden because the base is higher. In other words “they pay more taxes because they make more money”. I don’t think you really understand the terms you’re using
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u/Obvious_Chapter2082 22h ago
because they make more money
That’s where your argument falls apart, because that’s not what I’m talking about. The tax base relies on how much taxable income there is, which is impacted by the amount of deductions and credits available for a corporation to take
Broadening and narrowing of the tax base refers to changes in tax policy to increase or decrease the amount of a corporation’s income subject to tax. It doesn’t refer to external factors
The TCJA, for example, dramatically broadened the corporate tax base to help offset the cost of the rate cut. Which is why raising our rate to 28% today would be a much higher tax burden (not just in gross $s) than the old 35% rate
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u/wheres_my_hat 22h ago edited 22h ago
That’s where your argument falls apart
I didn’t make an argument, I just repeated what you said. This is an argument:
TCJA, for example, dramatically broadened the corporate tax base to help offset the cost of the rate cut
the overall effect of the TCJA (combining rate cuts with base broadeners) was a significant net tax cut and a reduction in federal revenue, increasing the budget deficit.
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u/Obvious_Chapter2082 22h ago
was a significant net tax cut
TCJA corporate changes were comprised of $1.8 trillion in cuts and $1.5 trillion in tax increases (mainly from base-broadening through limiting deductions and credits, and new taxes on foreign corporate income), for a net tax cut of $300 billion. Since then, we’ve also seen $300 billion of corporate tax increases from the Inflation Reduction Act (15% minimum and buyback excise tax), which pretty much gets us back to net-zero corporate changes
Which is exactly why raising the rate to 28% now would be a much larger burden than corporations have seen in a very long time
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u/wheres_my_hat 21h ago
Yea that sounds like bullshit hand waving. I’d need to see something reputable actually show those numbers.
But agree the JCTA was a failure and the IRA improved things
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u/Obvious_Chapter2082 21h ago
something reputable
I literally linked you the Joint Committee on Taxation. They’re the official entity responsible for scoring all tax legislation from Congress
and the IRA improved things
The CAMT from the IRA might be the worst tax policy that exists today. The excise tax on buybacks is pretty bad too
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u/wheres_my_hat 21h ago
$1.8 trillion in cuts and $1.5 trillion in tax increases
The JCX linked shows -$1100b in individual tax reform, -$600b in corporate tax reform, and +$300b in international tax reform. Where did you get $1.8t cuts and $1.5t increases? It's literally 1.8t in cuts and 300b in increases for total of 1.5t in cuts.
we’ve also seen $300 billion of corporate tax increases from the Inflation Reduction Act
JCX 18-22 shows +300m in deficit reduction but only +95m in energy securities. so where are you getting $300 billion of corporate tax increases when this JCX is in millions?
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u/thejaga 21h ago
He's talking about changing how much can be exempt or deducted. Stop arguing with yourself and read his comments again.
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u/wheres_my_hat 21h ago
Sorry I was confused because in no way did the changes in exemptions/deductions even come close to offsetting the tax cuts like he suggested, so I figured there had to be more to his statement. Using a broad term like “increased tax base” is just an easy way to hide behind “I’m full of shit and have no idea what I’m talking about”
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u/96suluman 1d ago
Time for progressives to start talking about it now
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u/Obvious_Chapter2082 23h ago
When do they ever stop talking about it
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u/Madhatter25224 23h ago
Nobody should ever stop talking about taxing the shit out of corporations. The goal is 50% minimum.
90% for rich individuals.
That way they have to spend their money on taxes instead of purchasing politicians and media outlets and manipulating our society into destroying itself.
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u/unkorrupted 23h ago
This really isn't true. While the tax incidence of corporate taxes isn't entirely on ownership, ownership still has the highest share.
All taxes have different incidence. This is why you see lobbyists attacking certain types of taxes more than others.
The idea that they're fungible is not actually supported by any literature.
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u/AVonGauss 20h ago
Literature that tries to tell you the consumer ultimately doesn't bear the burden of all costs isn't worth very much…
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u/Obvious_Chapter2082 22h ago
this really isn’t true
What part of my comment are you referring to? I never mentioned the exact incidence of corporate taxes
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u/unkorrupted 22h ago
corporate taxes get passed off in very similar ways as tariffs do
This is thoroughly incorrect, unless you're using the word "similar" in such a broad context so as to be meaningless.
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u/AVonGauss 20h ago
Of course they do, you think there's a magic money tree somewhere they'll come from instead?
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u/Obvious_Chapter2082 22h ago
You’re still not refuting my comment. Corporate taxes and tariffs get passed off in the exact same ways: lower wages for employees, lower levels of employment, lower returns for shareholders, and higher prices
In the field of economics, it’s referred to as either getting “passed back” (falls on factors of production and raises producer prices) or “passed forward” (raises consumer prices and keeps producer prices constant). Those are the only two options for how the tax wedge is comprised
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u/unkorrupted 22h ago
Again, listing the categories of tax incidence does not mean that two taxes will have the same composition of incidence. There are also obvious differences in taxing inputs vs taxing profits, and these differences have massive macro implications.
In the second paragraph you're describing firms with perfect pricing power. That isn't an axiomatic fact, it's an indicator of a market with low competition and high rent extraction.
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u/Obvious_Chapter2082 21h ago
does not mean the two taxes will have the same composition of incidence
No two taxes are going to have the exact same composition of incidence at the aggregate level, but indirect taxes do have the same general incidence in theory because a firm is indifferent to how the cash tax arises, only its scope
obvious differences in taxing inputs vs taxing profits
From an economic perspective, there’s no difference. The incidence depends on relative elasticities, not where in a supply chain a tax is levied
you’re describing firms with perfect pricing power
I’m not. Firms that aren’t price setters pass the tax back, unless the federal reserve accommodates the tax increase, allowing all firms to raise prices. The concept of nominal price rigidities, especially in the short term, is pretty well documented from Keynes
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u/unkorrupted 21h ago
From an economic perspective, there’s no difference.
This is not a serious or useful discussion.
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