Very confused why “the US economy contains a lot of middlemen, who can just absorb massive taxes without passing them on to the consumer” is only ever used as a handwave for explaining the unexpectedly low rate of inflation. I’ve seen multiple people (including normally level-headed people like Ezra Klein!) bring this up briefly, but never examine the concept in detail. If true, it’s a big deal, since that’s a lot of consumer surplus to be gained (presumably by limiting zero-sum advertising games?), and this issue deserves much more attention! Maybe it just seems more plausible to me—shipping alone can’t why the exact same CPU fans cost a fraction of the cost in China as they do in the US. Maybe Chinese consumers are just much more willing to pay the time cost to search for better deals (This seems obviously true to me, but I doubt it explains everything)?
Not sure about the exact context of what you write, but fwiw:
Intuitively agree partly that “many can absorb massive taxes w/o passing through to customers” could be justified on many individual cases: with low marginal cost production tech, your optimal sales price is roughly independent of the tax rate you pay: profit maximization becomes revenue maximization, which is entirely dependent on the demand curve only, and thus your sales price & qty sold won’t budge because of e.g. a VAT like tax rate increase.
Similarly, if tax is a profit tax, absence of price-increase effect can be even more easily expected
On the other hand, if you increase taxes, even if the above is strictly speaking true, it’s not true for all types of actors at all, and, maybe most importantly:
Note also, higher taxes, even for workers, may much simply “prevent” economic activity (which basic economic models imho wrongly tend to focus on), but instead makes actors do three costly and bad things: (i) illegally hide (black markets), (ii) tweak activity (for real or in the books) to adjacent but less taxed ones, (iii) evade by relocating activity to jurisdictions with less taxes (physically or digitally, again genuine or gray-area or more illegal-but-difficult-to-catch ones). Taken together these are powerful forces, esp. if unhinged intl tax competition has many jurisdictions aggressively trying to attract any tax substrate from anywhere.
Very confused why “the US economy contains a lot of middlemen, who can just absorb massive taxes without passing them on to the consumer” is only ever used as a handwave for explaining the unexpectedly low rate of inflation. I’ve seen multiple people (including normally level-headed people like Ezra Klein!) bring this up briefly, but never examine the concept in detail. If true, it’s a big deal, since that’s a lot of consumer surplus to be gained (presumably by limiting zero-sum advertising games?), and this issue deserves much more attention! Maybe it just seems more plausible to me—shipping alone can’t why the exact same CPU fans cost a fraction of the cost in China as they do in the US. Maybe Chinese consumers are just much more willing to pay the time cost to search for better deals (This seems obviously true to me, but I doubt it explains everything)?
Something to think about.
Not sure about the exact context of what you write, but fwiw:
Intuitively agree partly that “many can absorb massive taxes w/o passing through to customers” could be justified on many individual cases: with low marginal cost production tech, your optimal sales price is roughly independent of the tax rate you pay: profit maximization becomes revenue maximization, which is entirely dependent on the demand curve only, and thus your sales price & qty sold won’t budge because of e.g. a VAT like tax rate increase.
Similarly, if tax is a profit tax, absence of price-increase effect can be even more easily expected
On the other hand, if you increase taxes, even if the above is strictly speaking true, it’s not true for all types of actors at all, and, maybe most importantly:
Note also, higher taxes, even for workers, may much simply “prevent” economic activity (which basic economic models imho wrongly tend to focus on), but instead makes actors do three costly and bad things: (i) illegally hide (black markets), (ii) tweak activity (for real or in the books) to adjacent but less taxed ones, (iii) evade by relocating activity to jurisdictions with less taxes (physically or digitally, again genuine or gray-area or more illegal-but-difficult-to-catch ones). Taken together these are powerful forces, esp. if unhinged intl tax competition has many jurisdictions aggressively trying to attract any tax substrate from anywhere.
I was specifically refering to US import tariffs on consumer goods.