Myth: Any new corporate taxes will just get passed on to consumers

Often, if taxes are raised (or other costs go up) for businesses, the owners say that they will just raise prices and pass the costs on to their customers.
This claim is often accepted as fact because many people don't know about "elasticity of demand".

Elasticity of demand is perhaps the most important basic idea in economics that many people don't know.
It's a little technical, so here's a short version and a long version.

Short version:

You can only "just raise prices" to whatever you want if you have a monopoly on a necessity.
If you don't have a monopoly on a necessity, any corporate tax increase will be split between an increase in your prices and a drop in your profits.
The balance between the two depends on the elasticity of demand for your product (see long version, below).

So the cost of corporate taxes are usually split between the companies and the customers.

Long version:

Most people have heard of supply and demand, and understand that the balance between the two determines prices.

In econ101, you learn to draw curves representing supply and demand, and use these to think about various economic effects.
The demand curve represents the idea that customers will consume more of something if the price goes down, and less if the price goes up.
Similarly, the supply curve represents the flip side of prices, that companies will produce more of something if the price goes up, and less if the price goes down.
The point where these two curves cross gives you the actual price that the free market will settle on, and the corresponding quantity of the goods or services in question that will be traded.

Here's a diagram showing this. (Somewhat crude, sorry...)

The elasticity of the demand curve is simply the slope of the demand curve: how much demand goes down if price goes up by a certain amount.
Elastic demand will drop a lot for a particular price increase. This might be demand for luxury items that aren't at all necessary, like perhaps candy.
Inelastic demand will drop only a little for a particular price increase. This might be demand for hard-to-substitute necessities, like gasoline (in the U.S., where many people really have to use a car to get around.)

The reason elasticity affects "just passing the tax on to the consumer" can be seen in the two diagrams below.
The two diagrams show the effect of the same increase in a tax on the suppliers, assuming two different demand curves.
The cost increase means that, to sell the same amount of product, the suppliers would want a price that is higher by that amount.
But when you shift the supply curve up by that amount to reflect this, something different happens in the two different situations.
The intersection point moves differently (remember, the intersection point determines what the actual market price and quantity will be).

With inelastic demand (left graph), the market price increases by almost the whole amount, and the quantity only goes down a little.
In this case, the costs are indeed mostly passed on to the customer.

With elastic demand (right graph), the market price only increases a little, while the quantity drops a lot.
In this case, the customers buy less stuff, don't pay much more, and most of the tax comes out of the producers' profits.

Of course, in real life, the slope (elasticity) of the demand curve can be anywhere from almost vertical to almost horizontal, and you will usually be somewhere in between the extremes.
So the cost of corporate taxes are usually split between the companies and the customers.

(You might think that a supplier can still try to raise prices to totally cover the cost increase, but it won't work. If they do that, their competitors will sell at the true market price, undercutting them, and getting almost all the customers.)
This all assumes that there are relatively free markets, so there are enough independent suppliers and consumers that there is competition on both sides.
But even with a monopoly, if customers can choose to simply not buy your product, you get a similar effect (the details are left as a homework exercise). :-)