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To: Mr. K

Yes and no.

Corporations do not pass on corporate income taxes. To say they do would be to propagate the myth that they do.

What they pass on are taxes that are embedded in their cost structure.

But their income taxes are paid out of profits, e.g. EBITDA (earnings before income taxes, depreciation and amortization).

There is no practical way to price a product without a profit margin.


35 posted on 12/09/2006 5:41:00 PM PST by Hostage
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To: Hostage

What makes you think an estimate of their income taxes is not also figured into their pricing ?

A corporation is responsible to its shareholders as the owners of the business. Those owners have invested money and must see a return commensurate with their risks beyond what a riskless investment would return. That means the minimum after-corporate-tax ROI is predetermined by the market forces acting on the shareholders and the share prices, just as the prices of the company's products is subject to market forces of the consumers and the competitors' products.

The long and short of it is that the shareholders won't buy shares in a company that doesn't offer an ROI beyond what a safe investment would offer.

This means a corporation cannot simply wait until the end of the year to find out how much taxes it will owe, and the shareholders get whatever profit is left. They estimate the cost of the taxes they'll owe as part of the process of determining prices. They must, or they won't know whether to go ahead with a particular product or even whether to stay in business or not.

Corporate income taxes are not simply paid out of whatever happens to be left over as profit -- unless the corporation is being run by incompetents. The after-tax return is protected as much as possible while determining prices, and that means the corporate income tax is passed along just as any other cost -- resulting in higher prices, lower wages, or lower returns to shareholders, with their effect felt in that order.


38 posted on 12/12/2006 8:18:13 AM PST by Kellis91789 (Sarcasm should never need a tag.)
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