The point is that supply and demand works on the final price, not on "price before tax". Especially when taxes are proportional, so if you offer a lower price than your competitor, you also pay less of it to the state in taxes. So the tax level is irrelevant to the value of the market price, if you believe in supply & demand as the price setting mechanism. Showing price without tax is then obviously a scam to try to attack your psychology to think it's cheaper. They could just as well show price - marketing costs.
Of course, if businesses actually set prices as cost + margin, then it does make sense to separate tax from the price, as the value "price before tax" is a meaningful part of the price setting algorithm.
And lowering your margin is not the same thing as running a low margin business. If your margin was 20% at a tax level of 10%, and taxes go to 15%, then reducing your margin to 18% doesn't make you a low margin business now. Regardless, if you believe in supply and demand as the sole mechanism for price setting, this is all moot: the state increasing taxes won't increase demand or reduce supply with the exact same level as the tax increase, so the price can't move the exact same as the tax increase in this model.
I'd also note that it's not strictly true that taxes are completely decoupled from supply & demand. States do compete on attracting businesses through lower taxation.
> supply and demand works on the final price, not on "price before tax"
That's correct.
> So the tax level is irrelevant to the value of the market price, if you believe in supply & demand as the price setting mechanism.
Taxes raise the price, which reduces demand. If the prices don't rise, then the margins decrease, which reduces the incentive for the business owners to continue.
> doesn't make you a low margin business
It makes you a lower margin business. It reduces the margins on all the businesses, and the marginal (!) ones are no longer viable, and a new set of businesses become at the edge.
Of course, if businesses actually set prices as cost + margin, then it does make sense to separate tax from the price, as the value "price before tax" is a meaningful part of the price setting algorithm.
And lowering your margin is not the same thing as running a low margin business. If your margin was 20% at a tax level of 10%, and taxes go to 15%, then reducing your margin to 18% doesn't make you a low margin business now. Regardless, if you believe in supply and demand as the sole mechanism for price setting, this is all moot: the state increasing taxes won't increase demand or reduce supply with the exact same level as the tax increase, so the price can't move the exact same as the tax increase in this model.
I'd also note that it's not strictly true that taxes are completely decoupled from supply & demand. States do compete on attracting businesses through lower taxation.