Obama's press conference.

[Squilliam]

HappySqurriel said:

Squilliam said:

It doesn't work that way.

If a company is charged a tax then some of the tax is bourne by the company itself and some is passed forward to the consumers and backwards up the supply chain. Infact it doesn't actually matter whether the tax is originally placed on the producers or the consumers of the product. Whether the government taxed tobacco growers, tobacco companies or tobacco sales the cost would get passed onto the consumer because people are unlikely to decrease their consumption much in reaction to a price increase. Taxes aren't sticky, and who pays the tax is really dependent on the elasticity of demand/suppy of those involved.

Except it does work that way ...

Companies and individuals will do everything in their power to increase the cost of their goods or services, or reduce their expenses, to offset increased costs. These costs continue to be passed along until they reach a company or individual who doesn't have the ability to pass the cost along, and this (generally) means that the costs are felt by the middle class and the poor.

Certainly, the worker who is layed off because his tractor factory's production was cut may not associate it with an increased tax on canola oil which forced farmer to reduce their expenses (which resulted in fewer tractors being bought) but that would be the cause.

The more competitive the market, the less market power the producers/suppliers have. As the economy tends to be more competitive than not companies hold a little but not absolute market power. Also the more flexible consumers are, the more market power they have. If the price of canola oil goes up, people can easily substitute it for olive oil. So whilst Canola oil farmers would suffer, olive oil farmers would benefit.