29: Taxes on Production

JB Say forwarded the notion that taxes levied earlier in the manufacturing process have a greater impact than taxes levied later. That is, if the tax is on cotton, the price of material is increased to the spinner, weaver, dyer, and tailor and each adds his required profit to the cost of his materials. If the tax is levied on clothing only, upon the occasion of its sale to the final consumer, then it is not compounded.

Ricardo makes no objection to this observation, but cannot agree with a similar suggestion that it the collection of taxes in advance of manufacturer is necessarily to the detriment of the consumer, and from this additional tax the State derives no advantage. The state, having immediate needs of funds, must either demand and advance from the manufacturer or borrow, with interest, the same amount needed. There's some sophistry of mathematics and accounting that arrives at the conclusion that the manufacturer and government gain or save precisely the sum the customer pays. (EN: It seems a bit contrived, but I won't invest the time in untangling the logic of it just now, as it seems a strange case that will not often be of much interest.)

He also relates the mathematics of one Simonde (De La Richesse Commerciale), which may be of interest in the context of value-added taxation, where taxes on a good of 4,000 francs raise the price to the consumer by 6,734 francs if each of five middlemen handle the good and seek to gain a 10% return on their investment. This remains true if the return were sought per-transaction, rather than a 10% per annum rate, as the profit on a given transaction would be adjusted to the lapse of time between payment and recovery (if the good is held but a month, a 0.83% markup would be made). (EN: This is a little odd, and I'm not sure how many businesses handle their accounting in this fashion - insofar as I'm aware, this only occurs in financing, as a loan is repaid with interest accrued until time of repayment.)