## Comment: Re:To be more precise, Amazon will collect on taxe (Score 4, Insightful) 227

That assumes that the business can raise prices without consequence, which is an invalid assumption.

Only if the competition can avoid the taxes. If all of the players in the market get hit with the same taxes, then all of them absolutely can and will raise prices, and there will be no consequences.

Taxes are a percentage of profits, and are not deductible from revenue when calculating profits. So if Amazon raises their prices (and, assuming no change in consumer behavior, their revenue) by 10%, they also increase the amount of taxes they owe by 10%. So now they have to raise their prices again to cover the additional tax, lather rinse repeat.

This is a standard financial calculation, and a trivial one. The tax is 10%, so the increase is 10%, but there's 10% tax on that, so 1%, meaning the increase needs to be 11%, continue ad infinitum (literally). In other words, the new price needs to be 11.1111...% higher than the old one to keep profit margins unchanged. More generally, the increase needs to be the sum of the infinite series with terms r^n. This series is convergent if r < 1, and converges to 1/(1-r). So for a 25% tax, the company needs to increase prices by 1-1/(1-.25) = 33.333...% to keep profit margins unchanged after accounting for the new tax.

Of course, it doesn't quite happen like that. In practice, companies don't instantly raise prices. They do take the hit for a while, where it gets absorbed by the investors, not the customers. Then they allocate a portion of the losses to employees, in the form of reduced raises, or benefits. Then they raise prices. But eventually they get back to a steady state of roughly the same return on assets that they had before the tax hike.