Companies don't look at marginal unit costs or cost of revenue when it comes to assessing the impact of a new tax. They look at divisional operating costs or possibly the entire company's bottom line. When you factor in asset depreciation, R&D, fixed costs, and other overhead, that good that "costs you $1 to make and is sold for $5" isn't making you 400% profit margins; it's making 7.5% profit margins. So a 25% tax means either you raise prices or find a new supplier. That's what happens in the real world.
Right now, in real life, but with fake numbers, I have a production system that costs me $5 an hour to operate. I rent it out for $12 an hour. WAOW, that's 240% profit, says the retard. WAOW, I can tax you at 25% , and you won't change anything, says the moron.
Except the system itself cost $200,000. This is not paid for out of magic elf money. It's paid for out of that rent I'm collecting. Eventually. So to make rational plans, I have to model that as an hourly cost. 5 year depreciation, 8760 hours in a year, so that comes to 200,000 / (8760 x 5) = $4.56. So now my costs are $9.56. That 240% profit margin just got cut to 25%. We've got support staff for this thing, as well as salesmen making commission, and we can't rent it 24 hours a day, 365 days ayear, so at the end of the day, our profit ends up being around 84 cents per hour rented, or 7%.
Slap a 25% tax on me, and now I'm losing money. I will in fact raise prices to stay profitable, and I'll be raising them about the entire amount of the tax.
