Does sales tax mitigate the benifical effects of the devision of labor?

[Anon136]

So we have all heard the classic arguments about how the government is unable to utilize its tax revenue anywhere near as effectively as the people who they took it from could have. But i want to point out another problem that i don't think i have ever seen addressed.

I was laying in bed last night trying to wrap my mind around just how much we pay in taxes. I was thinking they probably take 50% in obvious ways, income tax direct sales tax capital gains tax ect... thats all pretty strait forward to calculate but what about the sales tax payed by the store to its supplier? what about the sales tax payed by the stores supplier to its supplier ect... It got me to thinking, taxing each transaction in an economy should incent actors to attempt to do things themselves that they would otherwise have outsourced. This doesn't sound like such a big deal until you recall that there are basically 2 components to the creation of wealth in a society. Specialization/the division of labor and capital accumulation. Handy-capping one of only two cylinders in the economic engine could be a bigger deal than we might realize.

The point is, the incentives for firms to internalize production that they could have otherwise contracted with a specialist for may actually be responsible for destroying more prosperity than the direct negative effects of redirecting these funds to less efficient allocation.

This could be what is preventing a sort of situation where, a factory owner doesn't actually own the factory, he just owns a plot of land where hundreds of mini capitalists can come in each with their own piece of equipment that they deploy only on their own terms.

This is probably also incenting firms to grow MUCH larger than they otherwise would have in a free market. Perhaps for this reason alone we would never expect to see a company even 1/10th the size of walmart in a free market society.

anyway what do you guys think? perhaps this is common knowledge and i just somehow overlooked it.

[nebulus]

I do not really think that decision to outsource comes based on whether you are going to pay taxes or not. Sometimes you have to outsource to get things done regardless of the cost. I think the cost of the final product you are making will just absorb your expences or eventually you figure out how to do it on your own. Also there is no way you can do everything on your own...

[Anon136]

I do not really think that decision to outsource comes based on whether you are going to pay taxes or not. Sometimes you have to outsource to get things done regardless of the cost. I think the cost of the final product you are making will just absorb your expences or eventually you figure out how to do it on your own.

we are talking about macro scale here. Sure in any one individual exchange that may be the case but on net taxes like this will cause people to sometimes make decisions differently than they would have made them in the absence of said tax.

[nebulus]

we are talking about macro scale here. Sure in any one individual exchange that may be the case but on net taxes like this will cause people to sometimes make decisions differently than they would have made them in the absence of said tax.

Sure... People will alter their decision making process to save money. However, the point of these taxes is to "protect" your business via the myriad agencies (ex. patent system). (Macro scale) I think successful businesses actually welcome taxation to some degree since it helps them maintain exclusivity or recover loses in case of natural disasters.

[Anon136]

we are talking about macro scale here. Sure in any one individual exchange that may be the case but on net taxes like this will cause people to sometimes make decisions differently than they would have made them in the absence of said tax.

Sure... People will alter their decision making process to save money. However, the point of these taxes is to "protect" your business via the myriad agencies (ex. patent system). (Macro scale) I think successful businesses actually welcome taxation to some degree since it helps them maintain exclusivity or recover loses in case of natural disasters.

rofl i know that companies like the monopolistic advantages that are granted to them by the state and im sure they all understand that this can only be funded through taxation but that isnt the point. I dont care what the companies think. I'm talking about how and why we can expect this policy to retard economic growth for the society as a whole.

[nebulus]

rofl i know that companies like the monopolistic advantages that are granted to them by the state and im sure they all understand thatn y be funded through taxation but that isnt the point. I dont care what the companies thing. Im talking about how and why we can expect this policy to retard economic growth for the society as a whole.

Well, you should because in the end they are making the product for you. Does it retard the growth? I don't think so because taxes don't only protect corporations they also protect the consumer.

Ex. of the latter would be tax on tobacco and alcohol, people drink/smoke less when its more expensive. I think these two things do more retarding the economic growth than taxes.

[myrkul]

Either there is a sales tax levied just once in the chain (either at the wholesale or at the retail level), or else there is a value added tax levied at every level in the chain (but each player claims back the tax they paid to their supplier).

This. The retail sales tax is just that, only at the retail level. (If you look at the law, technically it's the business that's supposed to pay that, they just pass it along like good capitalists.)

[kjj]

Either there is a sales tax levied just once in the chain (either at the wholesale or at the retail level), or else there is a value added tax levied at every level in the chain (but each player claims back the tax they paid to their supplier).

This. The retail sales tax is just that, only at the retail level. (If you look at the law, technically it's the business that's supposed to pay that, they just pass it along like good capitalists.)

Businesses pass all of their costs on to their customers.  That's how business works.  At least they are nice enough to show you how much of your bill is going to the state.

Also, most (all?) states have use taxes.  If you buy something online, and the online store doesn't collect taxes for your state, you owe that tax, and are obligated to report and pay it.  In most states, the two are combined into a "sales and use tax" statute that makes it clear that it is the purchaser that is obligated to pay the tax, even if the vendor is kind enough to collect, report and pay it for you.

[myrkul]

Either there is a sales tax levied just once in the chain (either at the wholesale or at the retail level), or else there is a value added tax levied at every level in the chain (but each player claims back the tax they paid to their supplier).

This. The retail sales tax is just that, only at the retail level. (If you look at the law, technically it's the business that's supposed to pay that, they just pass it along like good capitalists.)

Businesses pass all of their costs on to their customers.  That's how business works.  At least they are nice enough to show you how much of your bill is going to the state.

Yes, didn't you see what I wrote? "like good capitalists" If you got an anti-capitalist vibe from that, my apologies. It certainly wasn't meant that way.

[kjj]

Either there is a sales tax levied just once in the chain (either at the wholesale or at the retail level), or else there is a value added tax levied at every level in the chain (but each player claims back the tax they paid to their supplier).

This. The retail sales tax is just that, only at the retail level. (If you look at the law, technically it's the business that's supposed to pay that, they just pass it along like good capitalists.)

Businesses pass all of their costs on to their customers.  That's how business works.  At least they are nice enough to show you how much of your bill is going to the state.

Yes, didn't you see what I wrote? "like good capitalists" If you got an anti-capitalist vibe from that, my apologies. It certainly wasn't meant that way.

Heh.  It did seem like sarcasm to me.  No worries though, my post just clarified.

[Anon136]

Either there is a sales tax levied just once in the chain (either at the wholesale or at the retail level), or else there is a value added tax levied at every level in the chain (but each player claims back the tax they paid to their supplier).

This. The retail sales tax is just that, only at the retail level. (If you look at the law, technically it's the business that's supposed to pay that, they just pass it along like good capitalists.)

so all exchanges of goods and services that are not at the consumer level are tax free? well i know we at-least have tariffs so the same basic argument atleast applies there then.

[myrkul]

Either there is a sales tax levied just once in the chain (either at the wholesale or at the retail level), or else there is a value added tax levied at every level in the chain (but each player claims back the tax they paid to their supplier).

This. The retail sales tax is just that, only at the retail level. (If you look at the law, technically it's the business that's supposed to pay that, they just pass it along like good capitalists.)

so all exchanges of goods and services that are not at the consumer level are tax free? well i know we at-least have tariffs so the same basic argument atleast applies there then.

Yeah, tariffs are where the real destruction of division of labor (actually, comparative advantage) comes in. That's actually their stated purpose, to reduce the benefit of purchasing overseas goods, so as to encourage buying domestic. Sort of a national version of the broken window fallacy.

[nevafuse]

what about the sales tax payed by the stores supplier to its supplier ect...

I guess it depends on what country you live in, but in the US, businesses don't pay sales tax.  Sales tax is only paid by individuals.  Your argument about vertical integration is probably the reason it is done this way.  Of course all levels of taxation/regulation have artificial impacts.  So a similar argument could probably be made about progressive corporate income tax being a catalyst to integrate supplies with low margins to stay in smaller brackets.