Doug Henwood wrote:
>
> That's a very good question, though the political symbolism of a corporate
> tax cut while retaining the VAT on basic foods is very clear.
>
> I think that the Congressional Budget Office usually assumes that
> corporate taxes are split between capital and labor, while VATs are
> entirely passed along. One of the rationales is that not all producers are
> equally taxed, so the tax cannot be uniformly passed along, but with a
> VAT, all producers are in more or less the same boat, so their cost can
> be passed on.
>
> But I'd be interested in hearing from others on this issue. Is the
> corporate tax an illusion?
>
> Doug
>
Conceptually, it is essential to visualize HOW a corporate profits tax is
"passed on" to consumers. It is not sufficient for there to be "price
makers" out there .... they have to be "price makers" who use a "rule of
thumb mark-up pricing system." Any "price maker" able to approximate
"profit maximization" will not be able to pass on the corporate profits tax
to consumers --- only those with the flexibility of mark-up pricing (which,
we must remember, is a rule of thumb because "profit maximization" is too
difficult, creates too much instability, etc. etc.) can build the corporate
profits tax (estimate) into their "full costs" over which to apply the
mark-up. In Johm M. Blair's _Economic Concentration_ (showing my age) the
work of Robert Lanzilotti on pricing policies in Autos and I think Steel is
highlighted to show that GM, for example, was able to hit its target rate of
return almost without exception for most of the 1950s and 60s --- of course
this was a period of pretty substantial growth. The 1970s were a VERY
DIFFERENT story.
Jim Devine's idea probably won't describe the South African reality because
we're talking here about a coporate profits tax CUT --- and that would take
quite some time to find its way into SMALLER PRICE INCREASES over time. I
assume South African oligopolists are just as unwilling as others to spark a
price war --- though the pressures of international competition may or may
not play a role here.
As to shifting the corporate profits tax BACK to workers --- that's more
likely in a wage bargaining situation than in the US where there are very
few heavily unionized private sector industries. Again, I don't know how
many wages in South Africa are set by bargaining.
I definitely think it's fair to say, not all corporate profit taxes are
shifted --- in a situation of price leadership, if the leader shifts the
taxes, some of the higher cost non-leaders will not be able to shift all the
taxes while some of the lower cost non-leaders will be able to OVERSHIFT the
taxes! And then we have to toss international competition into the hopper
--- some people have argued that the whole mark-up pricing analysis of
"oligopolies" has been overwhelmed by the globalization of many markets
since the 1970s. This makes the corporate income tax a serious impediment
to international competitiveness while the VAT which is traditionally
rebated on export products doesn't have that problem!
Mike
--
Mike Meeropol
Economics Department
Cultures Past and Present Program
Western New England College
Springfield, Massachusetts
"Don't blame us, we voted for George McGovern!"
Unrepentent Leftist!!
[EMAIL PROTECTED]
[if at bitnet node: in%"[EMAIL PROTECTED]" but that's fading fast!]
