Hiding in the Price

As you know I follow the debate on the merchant fee called Interchange.  Interchange is the largest component of the discount rate paid by merchants when accepting a credit card payment.  There are strong lobby efforts by merchant associations and according to House Judiciary Committee Chairman John Conyers Jr. (D-Mich.), for each consumer payment card purchase--at the mall, at the grocery store, at a gas station or on the Internet--the merchant is charged a fee and these fees are ultimately passed on to all consumers in the form of higher prices for goods and services.

The concept that Conyers exposes is that of embedded costs which are hidden but are ultimately borne by the consumer. 

What’s crazy to me is that while so many seem to get this concept in the context of Interchange (including the Democrat from Michigan), few understand or even care about the huge problem of embedded and hidden costs created by our current tax system.  Harvard economist Dale Jorgenson added up the entire FICA payroll tax cost, as well as business income taxes paid and compliance costs, and found that the production costs of domestic goods and services could decrease by approximately 22 percent on average after embedded tax costs are removed.  That’s a 22% embedded hidden cost ultimately passed on to all consumers in the form of higher prices, yet the less than 2% Interchange fee has a strong merchant lobby.   

This is not an argument for or against Interchange.  It is a statement about hidden tax and the tax compliance costs (on top of all the other taxes Americans pay each year) that garners very little attention.  Why?   Particularly given the consequences to our economy and our competitiveness in the world.  

by Ty Hardison

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