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It isn't just tucked in to the price of items. Businesses pass it along to the consumer. If you raise the sales tax, then that means that the family is spending more. Is you are raising sales tax to cover all of our nation's income tax, then that is going to be MUCH more.
This isn't really true. Businesses have to eat some of the increased cost, depending on how elastic the price is. Something like gasoline, the price increase is mostly going to be borne by the consumer. Delicious chocolate truffles? Probably more by the producer/retailer. That said, a national flat sales tax is stupid. Almost everyone wants some measure of progression in a tax rate except for the crazy I guess.
Also, third degree price discrimination (what people are talking about with the elderly getting discounts and the like) is just a way to capture profit when you can easily seperate demand characteristics for consumer segments (this bears repeating). It isn't some nefarious plot to screw people. Well, not more so than any other profit earning behavior.
Price discrimination is Pareto-improving, too. Let's say the movie seat costs $10 to the theater. Market equilibrium cost is $20. Guy wants to see a movie for $15, law of one price says he can't get in. Price discrimination allows theaters to selectively identify such people and offer them lower prices, and then both random guy and theater walk away happier.
edit: given market competition, that is. And real-life firms often do disturbing things with the information and power that allows them to price discriminate. Such is reality.
to give some example numbers (largely pulled out of my ass, but based in reality), the average second-quintile family is spending 30% of their income on food (a necessity which cannot be cut signficiantly)...the average top-quintile family is spending 5%. Oh, exempt food you say? Okay, clothing then. Exempt clothing? Well then what are you going to tax to fill the coffers? We don't sell enough yachts in this country to tax those alone.
Let's also toss in the fact that while food and clothing are neccessities, in general, there are definitely luxury items within those catagories. If we exempt food, does that mean that caviar and champagne are now tax free? If we exmpt clothes, does that mean that designer labels that cost 5 times as much as the same article without that label are also exempted?
Drawing an arbitrary line doesn't work either, because you end up with outliers, and there simply isn't the manpower to judge everything on a case-by-case basis (higher enough people for that would take a tax increase. ;-) )
It isn't just tucked in to the price of items. Businesses pass it along to the consumer. If you raise the sales tax, then that means that the family is spending more. Is you are raising sales tax to cover all of our nation's income tax, then that is going to be MUCH more.
This isn't really true. Businesses have to eat some of the increased cost, depending on how elastic the price is. Something like gasoline, the price increase is mostly going to be borne by the consumer. Delicious chocolate truffles? Probably more by the producer/retailer. Edit: Oh yeah, ronyo brings up a good point though, the patterns of who bears that cost are going to be felt far more by the poor due to the nature of their purchases. I just want to get rid of the common misconception that a business will automatically pass on a tax increase exclusively to consumers. They can't really do that it in a market with non-perfectly inelastic goods.
Ceteris paribus, man.
If the price increase on a luxury good keeps people from buying it, then the supplier isn't likely to carry much of it afterwards anyway. Short term they may swallow a bit of cost, but I believe that a "fair sales tax" is meant to be a long-term solution.
Drawing an arbitrary line doesn't work either, because you end up with outliers, and there simply isn't the manpower to judge everything on a case-by-case basis (higher enough people for that would take a tax increase. ;-) )
Hate to burst your bubble, but governments can and do draw arbitrary lines on designated low-income goods. For coupons and such, for example. It's cruel, but it's better that the poor wear a limited range of shirts than have no shirts to wear...
This isn't really true. Businesses have to eat some of the increased cost, depending on how elastic the price is. Something like gasoline, the price increase is mostly going to be borne by the consumer. Delicious chocolate truffles? Probably more by the producer/retailer. Edit: Oh yeah, ronyo brings up a good point though, the patterns of who bears that cost are going to be felt far more by the poor due to the nature of their purchases. I just want to get rid of the common misconception that a business will automatically pass on a tax increase exclusively to consumers. They can't really do that it in a market with non-perfectly inelastic goods.
Ceteris paribus, man.
If the price increase on a luxury good keeps people from buying it, then the supplier isn't likely to carry much of it afterwards anyway. Short term they may swallow a bit of cost, but I believe that a "fair sales tax" is meant to be a long-term solution.
A price increase on a price-elastic good does keep people from buying it. That's why the equilibrium shifts so that suppliers cut into their profit instead :P It is true that applying the tax decreases the amount of the good traded, but the point here is that the supplier absorbs a higher percentage of the tax.
Drawing an arbitrary line doesn't work either, because you end up with outliers, and there simply isn't the manpower to judge everything on a case-by-case basis (higher enough people for that would take a tax increase. ;-) )
Hate to burst your bubble, but governments can and do draw arbitrary lines on designated low-income goods. For coupons and such, for example. It's cruel, but it's better that the poor wear a limited range of shirts than have no shirts to wear...
I'm aware, but as you said it was cruel, my point was that it isn't exactly the "fair" way to do things, therefore invalidating the initial argument.
This isn't really true. Businesses have to eat some of the increased cost, depending on how elastic the price is. Something like gasoline, the price increase is mostly going to be borne by the consumer. Delicious chocolate truffles? Probably more by the producer/retailer. Edit: Oh yeah, ronyo brings up a good point though, the patterns of who bears that cost are going to be felt far more by the poor due to the nature of their purchases. I just want to get rid of the common misconception that a business will automatically pass on a tax increase exclusively to consumers. They can't really do that it in a market with non-perfectly inelastic goods.
Ceteris paribus, man.
If the price increase on a luxury good keeps people from buying it, then the supplier isn't likely to carry much of it afterwards anyway. Short term they may swallow a bit of cost, but I believe that a "fair sales tax" is meant to be a long-term solution.
A price increase on a price-elastic good does keep people from buying it. That's why the equilibrium shifts so that suppliers cut into their profit instead :P It is true that applying the tax decreases the amount of the good traded, but the point here is that the supplier absorbs a higher percentage of the tax.
I'd draw a diagram, but imageshack hates me.
Which is, why, long term, the supplier is going to shift their resources to a product that is more profitable, if such an alternative exists.
For the most part we are talking about large corporate chains with managers who have been trained to maximize profits above all else. Yes, they may have to cut in to their own profits initially with a tax increase, but ultimately, they are still focusing on making the consumer pay as much for the product as the market will bear. Remember, the market finding an equilibrium point is an action of the "invisible hand", so to speak, not a specific act on the part of any group. The suppliers are still focusing on keeping prices as high as they can get away with. The businesses who insist on charging too much will go out of business, yes, but that doesn't mean that they won't ever exist.
Don't forget that their costs will also go up with such a tax. Even if intermediate and wholesale goods are exempted, their labor costs will potentially go up as the cost-of-living rises. They can't necessarily afford to shoulder both those cost increases AND internalize the increased sales taxes. Especially in areas like produce, where the profit margin is almost nothing. In fact, I expect you'd see a lot of small businesses unable to cope, and unemployment as a result, too.
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Price discrimination is Pareto-improving, too. Let's say the movie seat costs $10 to the theater. Market equilibrium cost is $20. Guy wants to see a movie for $15, law of one price says he can't get in. Price discrimination allows theaters to selectively identify such people and offer them lower prices, and then both random guy and theater walk away happier.
edit: given market competition, that is. And real-life firms often do disturbing things with the information and power that allows them to price discriminate. Such is reality.
I blame the OP's use of an analogy involving money, even when it wasn't really relevant to begin with...
Let's also toss in the fact that while food and clothing are neccessities, in general, there are definitely luxury items within those catagories. If we exempt food, does that mean that caviar and champagne are now tax free? If we exmpt clothes, does that mean that designer labels that cost 5 times as much as the same article without that label are also exempted?
Drawing an arbitrary line doesn't work either, because you end up with outliers, and there simply isn't the manpower to judge everything on a case-by-case basis (higher enough people for that would take a tax increase. ;-) )
Ceteris paribus, man.
If the price increase on a luxury good keeps people from buying it, then the supplier isn't likely to carry much of it afterwards anyway. Short term they may swallow a bit of cost, but I believe that a "fair sales tax" is meant to be a long-term solution.
Hate to burst your bubble, but governments can and do draw arbitrary lines on designated low-income goods. For coupons and such, for example. It's cruel, but it's better that the poor wear a limited range of shirts than have no shirts to wear...
A price increase on a price-elastic good does keep people from buying it. That's why the equilibrium shifts so that suppliers cut into their profit instead :P It is true that applying the tax decreases the amount of the good traded, but the point here is that the supplier absorbs a higher percentage of the tax.
I'd draw a diagram, but imageshack hates me.
I'm aware, but as you said it was cruel, my point was that it isn't exactly the "fair" way to do things, therefore invalidating the initial argument.
Which is, why, long term, the supplier is going to shift their resources to a product that is more profitable, if such an alternative exists.
For the most part we are talking about large corporate chains with managers who have been trained to maximize profits above all else. Yes, they may have to cut in to their own profits initially with a tax increase, but ultimately, they are still focusing on making the consumer pay as much for the product as the market will bear. Remember, the market finding an equilibrium point is an action of the "invisible hand", so to speak, not a specific act on the part of any group. The suppliers are still focusing on keeping prices as high as they can get away with. The businesses who insist on charging too much will go out of business, yes, but that doesn't mean that they won't ever exist.
Don't forget that their costs will also go up with such a tax. Even if intermediate and wholesale goods are exempted, their labor costs will potentially go up as the cost-of-living rises. They can't necessarily afford to shoulder both those cost increases AND internalize the increased sales taxes. Especially in areas like produce, where the profit margin is almost nothing. In fact, I expect you'd see a lot of small businesses unable to cope, and unemployment as a result, too.