Corporations cannot embed their ***income*** taxes into their pricing because they will be left with a larger profit (EBITDA) from which they must pay income taxes.
It becomes circular reasoning otherwise.
Shareholders never know what a ROI will be when they purchase stock unless dividends are paid and the stock price in stable. Earnings and growth are what shareholders pay attention to. ROI is more for initial founding investors or bondholders.
Where the misconception comes into play is sales taxes are passed on but those are not linked to corporate profits. The only way a corporation can get around this tax structure is to offer rebates. But rebates are not so common.
Corporations do pass on other taxes though as part of their cost. For example, corporate property taxes, payroll FICA contributions, state and local taxes they pay for services and products they use, etc.
Here's a simple example @35% rate:
Revenue 1000
Expense 900
Profit 100
Income Tax 35
If they try to embed their income tax into pricing, then we get:
Revenue 1035
Expense 900
Profit 135
Income Tax 47
but although estimated profit net taxes may increase, their products are less price competitive. Hence, actual revenues from sales may not be as high as estimated.
Corporations will charge what their markets will bear.
Baloney! In fact, they MUST do so or go broke as they have only ONE source from which they must pay everything from the electric bill to their income taxes and that is their SALE RECIEPTS. They spend loads of money making accurate assessments of what their tax liabilities will be for EXACTLY this purpose.
Corporations will charge what their markets will bear.
That is true and the problem is that with current U.S. tax law (the corporate income tax in particular) in place OUR producers are not able to compete effectively in many markets because we cannot border adjust our prices while others can and do.
"Corporations will charge what their markets will bear.
"
True, but don't misconstrue that to mean it is up to the company and its customers alone. Their competitors will bid down the price. Depending on how much competition there is for the product or service, this can lead to a minimum acceptable profit to yield the ROI that investors are looking for. ROI is not just important to initial investors as you seem to think. The stock market factors the current earnings and earnings potential into the stock prices every minute of every day. So new investors are expecting growth, dividends, or both and if they don't get it then they abandon the stock. That cripples the borrowing power and value of any treasury stock the company has retained. So ROI is always a concern to all investors, not just the initial investors.
(cont later)