Taxes nominally imposed on the profits of stock in particular employments—such as hawkers, hackney c… — Adam Smith

Taxes nominally imposed on the profits of stock in particular employments—such as hawkers, hackney carriages, alehouse licences, or proposed shop taxes—cannot in the long run fall on the dealers themselves, who must have their ordinary profit, but are instead shifted forward onto the consumers in higher prices.

By Adam Smith, from La Richesse des nations

Key Arguments

Smith introduces 'Taxes upon the Profit of particular Employments' and notes that in some countries 'extraordinary taxes are imposed upon the profits of stock; sometimes when employed in particular branches of trade, and sometimes when employed in agriculture.'
He lists English examples in trade: 'Of the former kind, are in England, the tax upon hawkers and pedlars, that upon hackney-coaches and chairs, and that which the keepers of ale-houses pay for a licence to retail ale and spiritous liquors.'
He adds that 'During the late war, another tax of the same kind was proposed upon shops,' justified on the ground that 'the war having been undertaken, it was said, in defence of the trade of the country, the merchants, who were to profit by it, ought to contribute towards the support of it.'
However, he asserts a general incidence principle: 'A tax, however, upon the profits of stock employed in any particular branch of trade, can never fall finally upon the dealers (who must in all ordinary cases have their reasonable profit, and, where the competition is free, can seldom have more than that profit), but always upon the consumers,' who will 'be obliged to pay in the price' of the goods for the tax.
This conclusion follows his broader doctrine that in competitive markets dealers earn only the ordinary rate of profit; any attempt to take part of this through a targeted tax must be recouped by raising prices, shifting the burden to purchasers.

Source Quotes

That of Holland was meant to be a tax upon the capital. Taxes upon the Profit of particular Employments. In some countries, extraordinary taxes are imposed upon the profits of stock; sometimes when employed in particular branches of trade, and sometimes when employed in agriculture.

Taxes upon the Profit of particular Employments. In some countries, extraordinary taxes are imposed upon the profits of stock; sometimes when employed in particular branches of trade, and sometimes when employed in agriculture. Of the former kind, are in England, the tax upon hawkers and pedlars, that upon hackney-coaches and chairs, and that which the keepers of ale-houses pay for a licence to retail ale and spiritous liquors.

In some countries, extraordinary taxes are imposed upon the profits of stock; sometimes when employed in particular branches of trade, and sometimes when employed in agriculture. Of the former kind, are in England, the tax upon hawkers and pedlars, that upon hackney-coaches and chairs, and that which the keepers of ale-houses pay for a licence to retail ale and spiritous liquors. During the late war, another tax of the same kind was proposed upon shops.

Of the former kind, are in England, the tax upon hawkers and pedlars, that upon hackney-coaches and chairs, and that which the keepers of ale-houses pay for a licence to retail ale and spiritous liquors. During the late war, another tax of the same kind was proposed upon shops. The war having been undertaken, it was said, in defence of the trade of the country, the merchants, who were to profit by it, ought to contribute towards the support of it.

The war having been undertaken, it was said, in defence of the trade of the country, the merchants, who were to profit by it, ought to contribute towards the support of it. A tax, however, upon the profits of stock employed in any particular branch of trade, can never fall finally upon the dealers (who must in all ordinary cases have their reasonable profit, and, where the competition is free, can seldom have more than that profit), but always upon the consumers, who must be obliged to pay in the price of

Key Concepts

Taxes upon the Profit of particular Employments.
In some countries, extraordinary taxes are imposed upon the profits of stock; sometimes when employed in particular branches of trade, and sometimes when employed in agriculture.
Of the former kind, are in England, the tax upon hawkers and pedlars, that upon hackney-coaches and chairs, and that which the keepers of ale-houses pay for a licence to retail ale and spiritous liquors.
During the late war, another tax of the same kind was proposed upon shops.
A tax, however, upon the profits of stock employed in any particular branch of trade, can never fall finally upon the dealers (who must in all ordinary cases have their reasonable profit, and, where the competition is free, can seldom have more than that profit), but always upon the consumers, who must be obliged to pay in the price of

Context

End of the provided passage, Book V, Chapter II, Part II; Smith begins the subsection on taxes upon the profit of particular employments, using English examples and stating his general view that such taxes are ultimately borne by consumers rather than dealers.