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Do You Trickle It Down?

One of the biggest objections to taxes for businesses is the notion that cutting their taxes will allow them to lower the prices on the products they sell, saving customers money and allowing them to spend more, spurring economic growth.

Do you really believe that it works that way?

Let’s suppose there’s a business owner who sells a product for $50 per unit and enjoys great sales.  A specific tax is removed from the equation and it’s now possible for this same business owner to sell the same product for $38 per unit and make the same amount of money.

The customer, thereby, saves $12 every time he buys whatever the product is.  It sounds like a great idea.

Unless you’re the business owner.

You’ve got good sales at a $50 price point.  You’re already selling your product at that price.  Are you really going to lower your price all the way down to $38 in some noble effort to improve the economy?  Or will you keep the price right where it is and pocket the additional profit?

Given the bad economy, if you didn’t drop your prices, it could be legitimately argued that you’re trying to make up for previous quarters when you were approaching a lot of red ink.  But even so, you’re not letting anything “trickle down” to the consumer.

I’m really curious to know whether you believe the majority of businesses would drop their prices to reflect what they would save on price cuts.  Without being required to.

Then, there’s the question of what you’d do with the money you’re saving:  are you really going to go out and buy more stuff, or are you going to bank that money, or pay off bills with it?  In my case, it’d be the latter.  And paying off a bill sooner (resulting in a loss of interest income to a credit card company) isn’t helping the economy either.

So could anyone who believes in the notion of “trickle down” as an irrefutable win-win please explain how they honestly muster that much faith in businesses and customers?

Do You Trickle It Down?
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