I don’t understand something Peter said in today’s show.
He explains that a profit tax is not passed on to the consumer, because the profit maximizing price is usually the one set before the tax. Changing that price because of the tax will bring in less money. He restates this as “If $10 per widget brings you the most profit, and then a profits tax lets you keep only 75% of your profits, well 75% of profits is also maximized at $10 a widget.”
All of which I understand. What I don’t get is the next part, where he says that the above analysis only applies to a profits tax, not to a sales tax. A sales tax, he says, is passed on totally to the consumer, [just as a payroll tax is passed on totally to the employees].
I don’t get it. Won’t passing the sales tax on to the consumer also reduce total sales, exactly and for the same reason as when it’s a profits tax?