Are Corporate Taxes Bad For Consumers?

A recent letter to the Topeka Capital-Journal, brought up a point which I hear expressed more often than not.  The author writes:

Take, for example, Washington’s recent effort to raise energy prices by increasing taxes on U.S. oil and gas companies.

Policies such as this are simply another tax on the public because energy costs directly influence the price of everyday goods. Everything from a hamburger to a pair of shoes will cost more for families in Kansas. I simply don’t understand how our leaders expect America’s businesses to be competitive or our communities to prosper under these circumstances. (2012, February 9)

PRO TIP: If you believe in free market principles, the author's assertion is false.

Now, I realize this variety of thinking is not only contagious, but seemingly filled with "common sense."  Unfortunately, it cannot be true if we accept free market principles and the framework which ensures the fair/competitive behavior of for-profit organizations.

Here's why the assertion is flawed:  If organizations/corporations pass the taxes incurred on to consumers in the form of higher energy prices, those organizations/corporations will necessarily harm their consumer appeal.  In other words, if you pass a tax along to consumers (which you are welcome to do), your customer base will inevitably seek out a competitor who offers a lower price on whatever good/service is desired.

Such behavior would necessarily harm the interests of the organization, which is to produce an income which exceeds operational/production costs.  (no customers = no income)

The only way in which such behavior could be possible without degrading a customer base is to remove the need for competition.  This could be achieved by "price fixing," but as I'm sure many of you know, that is illegal.


To Sum It Up: assuming the rational self-interest of corporations obtains, taxes do not affect the price of consumer goods: supply and demand does.  It is in the best interest of the organization/corporation to either absorb the cost of the tax or find a way to offset it without increasing the price of goods/services.