Businesses and Hidden Taxes: A Transparent Tax System Would Help Business Lower Prices Without Lowering Profits

Let me keep this topic section simple.  To do so, we will pretend that a business under our current system of hidden taxes pays 10-cents of every dollar it earns in hidden taxes, and also makes 10-cents of every dollar in profits.


By ending all hidden taxes, the business could lower its prices from one dollar ($1.00) to ninety cents ($0.90) and still make the same 10-cents in profits.  Thus, by way of a very simple example, I have shown that it is possible for business to lower their prices without lowering their profits by switching form a hidden tax to a transparent tax system.

I go into detail about the mark up effect of hidden taxes on price soon.  For now, I’m keeping it to a simple 10-cents example to make my point.

Lower prices would create the potential for consumers to buy more.

It is commonly known that business will, from time to time, put various of the stuff it sells “on sale”, offered at a lower price for a limited period of time.  Business does this because consumers will come and buy more stuff at these lower prices.  Big national chain-store type retailers do this all the time.

Well, since business is already showing us that lowering prices will stimulate consumers to come in and buy more, lowering prices as a result of ending hidden taxes would have the potential for doing the same thing, especially when it comes to food and other basic necessities that I’m suggesting should be exempt from having any transparent taxes added to the consumer purchase total, out of respect for the neediest members of society.

Hidden Taxes and the Normal Business Practice of a MARKUP.

Now, I’m sure that someone is telling themselves that the dollar amount of transparent taxes added on to most purchases is going to be the same as the hidden taxes currently built into the price of the stuff consumers are already buying.  And from this they are telling themselves (and maybe other people also) that the purchase total paid by consumers would end up being the same whether we continue with a hidden tax system or change to a transparent tax system.

And that would seem to be true.  But it isn’t.

Experienced business owners and managers who have actually dealt with and used the process of a markup know that when a business buys from a supplier, that business puts what is called a markup on the price it is charged.  This markup is usually a percentage or is multiplied by something.  For example, if a retailer marks up the wholesale stuff it buys by 50%, then if the retailer pays $1.00, after the markup it will be sell that same product for $1.50.

The wages that retailer pays their employees, along with other business expenses are paid using the money from the marked up portion of the prices it charges.  The markup is also how the business creates any kind of profit.

Because the purpose of this hidden tax series is not to debate the right or wrong nature of how some businesses markup their products, I am not going to attempt to debate or comment on that here.  I am only saying that it happens.

Now, if we pretend that there is 8-cents worth of hidden taxes built into that wholesale price of $1.00, when those hidden taxes are replaced with a transparent tax, the wholesaler can reduce its price from $1.00 to $0.92 cents, and the same 50% markup would result in a price to the consumer of $1.38.  Why?  Because the 8-cents in hidden taxes passed onto the retailer also got marked up by 50% simply because they were built into, or hidden inside of the price charged by the wholesaler.



Thank you for taking time to read and ponder my opinion on this topic.
An Opinion Article by Dave Kemper
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It has been said that: "One definition of insanity is to do the same thing, the same way, over and over and over again, each time expecting to achieve a different result."
Therefore, we must either CHANGE the way we live, or we bind our future to our past as if with CHAINS.
"I do not consider myself to be better than anyone else.  But I do believe in exercising my right to not stay stupid."

David W. Kemper, Author
© Copyright 2014 by David William Kemper.  All right reserved
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