My question pertains to Rothbard’s “Power and Market” pp.88-90 on sales tax. According to Rothbard, “No tax can be shifted forward” since prices are determined by supply and demand and not costs of production. “Prices are already at the point of maximum net revenue, the stock has not been decreased, and demand schedules have not changed. Therefore prices cannot be increased.”
I live in Washington State, where we are subject to a sales tax. Neighboring Oregon has no sales tax. I seemed to remember some Oregonian acquaintance suggesting that Washingtonians would come to Oregon to shop, since there was no sales tax. But, according to Rothbard, shouldn’t prices in Oregon be equal to prices in Washington + Washington sales tax? So I did some very cursory research on the internet and found that prices at Safeway stores in Seattle and Portland for items on sale are the same. Shouldn’t the (pre-sales tax) prices in Washington be lower than prices in Oregon?
No, because they are not the exact same market.
For one thing, they are physically in different places. I realize that they are not very far apart but their clientele is not the same. People do not just go out and buy groceries – they also want convenience in their shopping too. I do not know what traffic is like during shopping hours but, people in Oregon may value their travel time at about the same price of the sales tax.
thought experiment:
two shops are next door to each other so distance between the two is negigable. but A is owned by people pally with the elite political class, and B is owned by a maligned minority. The political elite slap a sales tax on B, that A can avoid somehow.
what would be the effect. ?
well, both stores before the tax enjoyed the going rate of profit, and sold roughly equal amounts of the product.After the tax A continues to makes a profit, and B makes a loss (or smaller profit). B doesnt like to make loss or waste his capital on second best profit opportunities, and so orders less in. this restricts the supply to customers of ‘the two stores’, which makes prices rise to ration the demand.
A gets the benefit of this, if he keeps his prices steady whilst B cuts back his exposure to the product, A will find himself the SOLE SUPPLIER, as B cant compete on an identical product
It looks to me that we are going to have to give up everything being equal for A and B, if B is somehow to stay in business with this product, because A can simply out compete on it.
so
if A and B get seperated by distance, and the cost of buying from A to people who happen to live closer to B should rise above the difference in the tax, then B starts to look like the go to place again.
but remember, people close living to B are paying higher prices than they would have without the tax in force, because the tax causes B to bring fewer of the taxed goods to market than otherwise, and this restriction of supply is the explanation to how consumers incur negative effects from taxes on sellers (despite the tax falling directly on sellers) (it falls indirectly on consumers by the secondary effect of restricting supply)
You mean “people in Washington” may value their time more than the sales tax.
I see my error now. Rothbard meant “prices cannot be increased” without lessening demand. Sorry about that and never mind!