On another thread the topic of how much tax the rich pay came up. According to everyone but me, the rich do not pay any taxes, they simply raise the price of the good they produce to cover for the tax hike.
Here's an example:
"The rich do not pay taxes, we pass the cost of taxes over to the consumers. I am retired, and 90% of my income comes from rental income. If tax rates go up, then rents will go up - plain and simple."
I can understand the business owner would try pass the cost on to the consumer but doesn't this violate the basic laws of supply and demand? If you raise the price of a good, demand for that good will fall and your profits wil be reduced at some point, correct?
Suppose you sell widgets. Your cost is $1 and you sell the widgets for $2 and the tax rate is 0%. The demand for those widgets is 1 million in a year so you make a profit of a million dollars. Now suppose the tax rate is 50%. So you raise the price of the widget to $3 to cover the tax increase. But here's the catch. At 3$ a widget you can't sell 1 million widgets! So your profit gets reduced. So you ARE paying taxes.
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