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Comment by Retric | Hacker News Reader

Taxing profits can't directly be passed on to consumers because the point of profit maximization remains unchanged. IE if a restaurant makes more money charging 25$ for a meal than 30$ then increasing prices simply reduces profits.

What gets passed on is things that increase costs for the industry like property taxes. If every landlord in the city pays an extra 50$ a month/unit in property taxes you bet rent's going up to compensate.

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True in theory, but in practice the tax increase can act as a collusion signal for the entire industry to raise prices all at once.

Arguably food price inflation has been like this. Clearly the market can withstand it if everyone moves together.

All this is not to say that taxes should never be increased of course.

Taxing profits is similar (but not identical) to taxing all investment returns. From the company’s perspective, it reduces the value of domestic corporations to investors (thus advantaging foreign corporations). From the individual’s perspective, it reduces investment incomes (including those funding retirement accounts). In this way, it is passed on.

From another point of view, individuals (are supposed to) react to taxes by reducing 'luxury' spending, but businesses don't enjoy luxuries, only their investors do.

Taxing profits would be equivalent to taxing investment returns except foreign inverters don't pay US income taxes. It's therefore advantages for US taxpayers to Tax companies operating in the US.

Well, it depends: if the restaurant is able to keep the same number of meals per day with a price point of $30, then they still make more at $30 than at $25, even with a higher tax.

It's just you can't blanket assume that a particular price point is going to increase or decrease sales until you try it, so...

The example was presupposing a profit maximizing price. Of course businesses should optimize what they charge, but the incentives exist independent of minor changes to the US tax code.

I don't think that's true in the medium term... definitely not in the long term... and maybe not even in the short term.

Think it though. If you could make more money long term while using cheaper ingredients or similar cost saving measure then what's to stop you from doing that without the tax increase?

Depending on the circumstances, that's a big "if". If your not-so-cheap ingredients are one of your restaurant's selling points (even if not explicitly), using cheaper ingredients could reduce your sales such that the savings turns out to be a wash, or a waste.

I think this happens all the time: it's not uncommon to see a restaurant review that goes something like, "I'd been coming here for years, but the quality of food has gone down recently". Granted, you don't know why: maybe they switched to cheaper ingredients, or maybe they got some new cooks that prepare things poorly (or even just differently), etc. But some type of cost-cutting measure could be to blame. And if that person -- and others (and perhaps potential new customers who see the recent bad reviews) -- stops visiting or visits less frequently, those cost-cutting measures may turn out to not have been worth it.

Your airtight logic astounds me.

thnaks

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