| There is a big debate about who pays tariffs. Tariffs are one type of tax. It is true that the buyer pays 100% of the tariffs, and it is also true that the seller pays 100% of the tariffs. Many people will argue one side or the other, depending on their policy preference. The only place the money can come from to pay a tariff is from the buyer. On the other hand, if a 50% tariff is on a product that cost $100, the seller needs to charge $150 to the seller. If a buyer is willing to pay $150 for that product, it could be well reasoned that without the tariff, the seller would raise their price to $150 for that product and make a more substantial profit; thus, the tax is paid for by the seller. It is true that the role of prices and competition will shrink that profit margin; however, the business would benefit from a much higher demand at the lower prices. A whole host of factors come into play. |  |
 | With few exceptions, taxes are on a transaction. If the sale does not happen, no taxes are levied. The buyer and seller must agree on the price of the transaction. A tax such as the income tax is said to tax the seller and taxes such as a sales tax is said to tax the buyer. In reality, the tax is on the transaction that both sides must pay. If there is an income tax of 50%, a seller must price an item for sale at $200 to receive $100. If there is a sales tax of 100%, the price of the product is $100, and the buyer must pay $200. Both ways, the buyer spends $200, the seller receives $100, and the taxing authority receives $100. |
| Without this tax, a hundred economic realities come into play. The price will likely fall between the $100 and $200 marks. If the government is not taxing, are they still providing the needed services? Are other taxes increasing? Does the buyer or seller have to pay for the services not provided for by the government? It is difficult to hold all other issues steady to focus on the reduced taxes, but the overall role of prices and competition will force prices to a steady range, although constantly in flux as with all prices. |  |
 | The competition of customers seeking lower prices always push prices down, and the necessity of expenses to produce a product puts a floor on price. Without the tax, the seller might increase the quality of the product, increase wages of his employees, invest in better equipment, and lower the sales price of the products. The demand for that tax margin, once gone, will be numerous. Employers doing it poorly will go out of business, and the employers making better choices will thrive. |
Tax and tariff effects
| There is a large Laffer Curve effect with tariffs. Every potential buyer and seller must have an overlap in the price for the transaction to occur. Every overlap in price is different. As the tax rate on the transaction increase, the overlaps are overcome, and the number of transactions decreases. The Laffer Curve recognizes that increased tax rates, increase the amount of money collected from each transaction; however, also reduces the number of taxed-transactions. No taxes are collected from a transaction that does not happen. At low tax rates, an increase in tax rates will create more tax revenue; however, there is a point where reduced transactions reduce overall tax revenue. |  |
 | Every Laffer Curve is different based on hundreds of factors. The Laffer Curve is the tax revenue line sloping up at low tax rates, leveling off in the middle, and dropping down to $0 when the government takes 100% of the zero taxed-transactions. The reason for the curve is because every buyer has their point where the tax rate pushes the purchase outside their top buying price. The rich will have a much higher buying price compared to the poor. The increasing tax rates stop the transactions of the poor much faster than the rich. Taxing the transaction between a poor person and a rich person or wealthy corporation either taxes the poor person or pushes the overall price of the product out of the reach of the poor person. |
| There are products with significant price overlaps and other products with very low-price overlaps. However, tax rates also change other markets as well. The complications are too numerous to factor everything in; however, there are economic tax principles that should be considered. How easy is it to do the transaction outside the taxing authority? How easy is it to switch to another product with low tax rates? How easy is it to do without the product? How easy is it to create the product or do the service yourself? The easier it is to not do the taxed activity, the quicker the Laffer Curve starts to slope down. |  |
 | The price of water has an enormous price overlap in that the buyers are willing to pay enormous amounts for water and seller’s expenses for water is quite low. A 90% income tax or the equivalent 1,000% sales tax could be levied, and people would still buy the water to drink; however, low value uses of water such as watering grass, or car washes would be curtailed. In contrast, a poor person’s overlap in price with the dealership on a new BMW is non-existent. As a person becomes wealthier, the cost of the BMW becomes within reach; however, only after they overcome the sales tax on top of the cost of the car. |
| One of the main motivations of a tariff is to disincentivize economic activity in specific areas so that higher economic activity happens in other areas. The purposes of tariffs to some people is not to increase tax revenue, it is to reduce the number of transactions in one place in hopes that those transactions will happen in their geographic region or with them as the producer. The Laffer Curve is well known and used by tariff supporters to reduce economic activities of their competition in hopes they can get the business. The tax revenue of the tariff is an afterthought and a bonus, not the point in most cases. |  |
 | If the level of overlap in agreeable price is available between the potential buyer and seller, the transaction will happen; however, if there is a percentage of tax that goes beyond that overlap, it stops the transaction. The whole notion and reasoning behind the Laffer Curve are that every buyer and seller has a different size overlap that can withstand a tax rate. Transactions that do not happen are not taxed. |
Who collects the taxes on the transaction between people of two different countries?
| If a taxable transaction occurs between two countries or the people of two countries, the taxing authority collects the tax. So, if China puts up a tariff, China collects the tax. If America puts up the tariff, America collects the tax. The tax is paid for by both sides of the transaction as both parties must overcome the additional fee as increased expenses or lower profits. The country that collects the taxes can increase its level of services or reduce its other tax burdens. |  |
