The profit surcharge

One of the oddities of American society is that in most cases you never know what something is going to cost until you are actually charged. The prices marked on the items on the shelves and on the restaurant menus are never exactly what you are going to wind up having to pay. The reason is that sales tax is only added into the cost when you complete your transaction. Growing up, this felt completely natural, if annoying, because it kept me from planning out exact change in advance. The first time I visited a country where the tax was already incorporated into the listed price, I couldn’t believe we would do it differently.

The reason, of course, is ideological: they only add in the tax later so that you feel that the tax is an extra imposition. Every American has to deal with a slow grind of daily annoyance at sales taxes, and any increase in taxes is immediately visible. Obviously this measure didn’t cause the US’s pathological tax-phobia — the very rationale for the Revolutionary War was largely to avoid taxes — but it certainly helps reinforce and reproduce it on the level of everyday practice.

On the level of policy design, it’s a minor feat of evil genius. And I think that left politicians should push to imitate it by proposing that profit margins be treated the same. The price on the shelf or on the menu should include the costs of production, distribution, and marketing. Only when you get to the cash register is the profit margin added onto the price. We get to know how much of our purchase price is going to fund public goods — why shouldn’t we also learn how much of it is enriching stockholders?

I can anticipate a lot of objections to this policy — above all that it would never work because companies would find loopholes, etc. But can you imagine how much business leaders and their lackeys in politics and the media would whine and cry about it? They have worked tirelessly to legitimate profits as necessary and even beneficial to consumers. They have rebranded them as “investment” (because wealthy people’s savings is by definition “investment”). They have claimed that profits are the only way to motivate anyone to do anything, even though everyone knows from their everyday life that that is a lie. They have gotten media and politicians to treat their profit margins as an inalienable right. I think here of the time that Obama responded to complaints that proposed banking regulations would cut into bank profits by saying that they weren’t entitled to a certain level profit… then ultimately apologized. Or of the time when a widely-shared story claimed that an iPad made in America would cost $40,000, presupposing that they would maintain the same astronomical mark-up — on a percentage basis, no less!

Whatever necessary role profits play in our economic system as it actually exists, and whatever longer-term benefits profits create in that context, the fact remains that from the consumer perspective, in the moment, the profit margin is a surcharge added over and above what it costs to create and distribute the item. In a society based on awareness and individual choice, customers should have a right to know what that surcharge is. The fact that they don’t — and that it would probably cause major social disruption if they did — shows how much deception and mystification is at the root of our supposedly “realistic,” purely utilitarian economic model.

(Cover image source)

4 thoughts on “The profit surcharge

  1. It kills me that in nearly every public discussion about raising any kind of cost that a business might incur (minimum wage, taxes, etc.) it is presented as an immutable law of nature that the costs “would simply / just / need to be passed on to the customer”. Unthinkable that the cost could be absorbed by the ownership.

  2. One practical question might be what would be counted as “cost of goods sold” and what would be counted as profit. In particular, would things like advertising be identified as, in effect, a way of dressing profits up as costs, or not?

  3. It would be difficult to decide on the proper definitions and any system would be gameable to some degree — but accounting standards do exist and companies do report their profit margins, quite proudly!

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