Future Tax Increase

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darbikrash wrote: Taxes

darbikrash wrote:

Taxes imparted on corporations are not passed on to consumers. This is false. Taxes are absorbed from profits, and yes, these lower profits are passed on to shareholders.  And the investors and principals should indeed receive lower profits as a result of taxation, as the corporation has used collective resources, bought and paid for by the taxpayer, to reap these profits.  The taxpayer does not receive a dividend, the shareholders do. The shareholders do not pay for the collective infrastructure allowing the corporation to conduct business, the taxpayer does.

But of course reasoning with this type of mindset is an impossibility, just another “it’s the gubmint Martha” rant.

darbikrash,

When I purchase anything, I'm paying a portion of the complete cost of materials, labor, transportation, marketing, profits, and taxes. The product doesn't come with a breakdown of costs, and I quite frankly, don't expect one. Sellers may use a complex curve to determine prices and set their selling point so that they maximize profits. As such, small increments in additional taxes may be absorbed temporarily, but if taxes are increased high enough or long enough, companies will factor that into their curves and adjust their price point; otherwise, their profit will suffer and the company's stock price will also drop due to simple P/E ratios making it seem expensive based on the decreased profits.

If all companies producing any given product are subject to the same tax increase, all companies will have impetus to adjust to a higher price point. The end result is that the consumer will end up paying more for the same product. Although the theory says that taxes aren't directly passed on to consumers, the end result is the same. Consumers pay higher prices.

I'm not arguing for higher taxes here. I'd rather see business pay no taxes and get effectively politically neutered. They would be chattel of the stock holder(s). Chattel has no voice, no vote, and no consequences for actions. All of that would be transferred to the owner(s) along with the tax obligations. Rather than levy taxes the corporations can't vote for or against, I'd like to see them pay fees based on their usage patterns of roads, water, sewer, etc. Give the operators a choice to minimize costs and they'll take it. In the long run, consumers will receive the benefits.

Grover

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Examples To The Contrary

Grover wrote:

When I purchase anything, I'm paying a portion of the complete cost of materials, labor, transportation, marketing, profits, and taxes.

Yes, but corporations can't guarantee they won't pass the savings of tax breaks onto consumers, either. When the tax on phone bills to pay for the Spanish American War was finally ended several years ago, Verizon decided to create a new "service fee" equal to the amount of the old tax, hoping people wouldn't notice. There was much uproar over this so Verizon didn't. But they were going to.

On the other end, you see restaurants trying not to raise prices even though their vendors have raised prices. The restaurants don't want to drive away customers.

So what you see is, businesses will charge whatever they feel they can even if taxes are reduced. And expenses will sometimes be eaten despite the cost.

Oh, and another thing: Businesses that pay no taxes will have even more money to lobby with and make campaign contributions with.

Poet

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hold on to your hat

This is an interesting discussion.  After watching the antics in DC this week, I think the politicians (repub and dem) have looked at what we all have been looking at for some time and come to the same conclusion we have - we are all in big bad trouble.  They are having trouble dealing with it just like we are.  One thing I believe everyone agrees on is when you take a honest and in depth look at the numbers it is terrifying.  None of the pat answers from either political party will work and no matter what their public stance, they know we are going to have some kind of event no matter what they do in the not too distant future.  Raising the debt ceiling is an interesting game but does not address the underlying problem at all.  When they look at the underlying issues they know as well as we do that our goose is cooked.  You can cut say 40% of the fed gov and bring us into balance but the country will go wild.  You can keep spending and the Fed Res can monetize the extra debt and in the end the country will still go wild.  I think that is what is bringing on the paralysis - as much as would like to claim they are stupid, they are not.  There is no good answer and they know it just like we know it.  The welfare state does not work no matter how bad you want it to work.  It never has worked on a large scale.  We tried to do something that does not work and now we are going to have to pay the price for that mistake.  It is going to be a wild ride for sure.  Hold on to your hat...

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Grover wrote: When I

Grover wrote:

When I purchase anything, I'm paying a portion of the complete cost of materials, labor, transportation, marketing, profits, and taxes. The product doesn't come with a breakdown of costs, and I quite frankly, don't expect one. Sellers may use a complex curve to determine prices and set their selling point so that they maximize profits. As such, small increments in additional taxes may be absorbed temporarily, but if taxes are increased high enough or long enough, companies will factor that into their curves and adjust their price point; otherwise, their profit will suffer and the company's stock price will also drop due to simple P/E ratios making it seem expensive based on the decreased profits.

If all companies producing any given product are subject to the same tax increase, all companies will have impetus to adjust to a higher price point. The end result is that the consumer will end up paying more for the same product. Although the theory says that taxes aren't directly passed on to consumers, the end result is the same. Consumers pay higher prices.

I agree with some of your statements, and yes, the linchpin is the notion of how high the taxes are. I do agree, at some threshold, the tax can be too high for the corporation to absorb, and one option is to try (operative word here is try) to pass this on to the consumer.

However, I would make the remark that although you may not be interested in a detailed cost breakdown, the corporations most certainly are and have done so. As well as performed a price discovery exercise which dictates the relationship between price and unit volume. When this price discovery is optimized, the production facilities are matched up to the optimal unit sales, and profit margins are determined. The indifference curves determines at what price the consumer will simply no longer be interested in purchasing the product. If this is exceeded, than no (or few) product is sold. Price discovery is intended to flesh out this point, and if a profit can if fact be obtained- which is not a given.

The bottom line is that in the end the consumer determines price by either purchasing in sufficient quantities to enable a profit center, or not. If the price exceeds the indifference curve values, the consumer will not buy at all- and cares not whether the costs contain taxes, profits, or just raw material values.

In most cases, with discretionary goods, you will find that attempts to pass normal (whatever that is) taxes onto the consumer will fail, and do so because the unit volume of goods will decline, reducing profit margins in two dimensions; a.) Lower unit volume will reduce margins as the amortized costs will be shared among fewer units, reducing profit margin. Said another way, benefits of scale disappear when lower quantities of goods are sold, b.) These lower margins are now applied to overall smaller sales, a double whammy, as consumers will buy fewer numbers when the price is higher.

The bottom line here is that in the case of typical incremental taxes, the corporation will not pass these costs on simply because it is not in it’s best interests to do so, because to do so will disturb the economies of scale, force reduced sales, and as such, lower margins. In fact, with a properly optimized price demand curve, it will often be cheaper for the corporation to absorb the cost than pass it on- for the aforementioned reasons. And this is why the oft held belief that incremental taxes are simply passed on to consumers is not true.

But I would agree that if the tax gets high enough, the corporations will not find this to be true, and can no longer absorb the costs, but also realize that the consumer won’t buy it either.

Another related fallacy is that corporations are much more interested in markets and market potential than tax rates. Who cares if the corporate tax rate is 6% in Somalia if they can’t sell goods there because no one has any money? The market value and market potential contains much higher value to the corporation because indifference curves are very much stratified by income- some thing not recognized by classical liberalism. Selling into a market such as the US is the best deal going even at 35% tax rate. However, the corporations want it both ways, access to the lucrative market for sales, and then location of the labor force in a country with no regulation, low taxes, and most significantly low labor burden.

Ultimately, this model will cannibalize itself, as unemployment soars due to job outsourcing, income becomes grotesquely mal-distributed to a small number of actors, and an unstoppable chain reaction of events continues with declining wages and reduced purchasing power, ultimately destroying the value of the market and initiating the exodus of the corporations- with predatory precison to the next target country.

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Poet wrote: Yes, but

Poet wrote:

Yes, but corporations can't guarantee they won't pass the savings of tax breaks onto consumers, either. When the tax on phone bills to pay for the Spanish American War was finally ended several years ago, Verizon decided to create a new "service fee" equal to the amount of the old tax, hoping people wouldn't notice. There was much uproar over this so Verizon didn't. But they were going to.

On the other end, you see restaurants trying not to raise prices even though their vendors have raised prices. The restaurants don't want to drive away customers.

So what you see is, businesses will charge whatever they feel they can even if taxes are reduced. And expenses will sometimes be eaten despite the cost.

I agree, Poet - businesses will charge whatever they feel they can. I actually support this action. If a business gets too greedy, there will be many businesses looking at a way to make some money by making the product and selling it at a lower price. Unless the greedy business has a monopoly (or lock on the technology, network, etc.,) they will be subject to market forces. If somebody has to have a smart phone with instant access to a 4G network, they must pay the price! Nobody is holding a gun on them.

Poet wrote:

Oh, and another thing: Businesses that pay no taxes will have even more money to lobby with and make campaign contributions with.

directly passed on to consumers, the end result is the same. Consumers pay higher prices.

Given the current system, you are correct, that is why I stated that I'm a fan of removing a corporation's "rights." A corporation should be a vehicle to conduct business. Nothing more. Corporations have nothing but a legal document causing their existence. They should not have any right to anything. The owners need to retain all rights and responsibilities. Here is what I wrote:

Grover wrote:

I'm not arguing for higher taxes here. I'd rather see business pay no taxes and get effectively politically neutered. They would be chattel of the stock holder(s). Chattel has no voice, no vote, and no consequences for actions. All of that would be transferred to the owner(s) along with the tax obligations. Rather than levy taxes the corporations can't vote for or against, I'd like to see them pay fees based on their usage patterns of roads, water, sewer, etc. Give the operators a choice to minimize costs and they'll take it. In the long run, consumers will receive the benefits.

Granted that corporations are outsourcing many jobs to China. So be it. China and all other low cost producers are currently suffering the consequences of their success. I heard on NPR "Marketwatch" that Chinese workers are being courted by other companies that are offering higher wages and benefits. The workers have little or no loyalty. They are being mercenaries. Good for them. Eventually, the cost benefits that China currently enjoys will be erased. At that point, the soul-less corporations will reevaluate the situation and choose to manufacture here. If our current financial/energy situation lasts long enough, things will work out in the end. (By the way, I don't expect our current situation to last.)

Grover

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darbikrash wrote:I agree

darbikrash wrote:

I agree with some of your statements, and yes, the linchpin is the notion of how high the taxes are. I do agree, at some threshold, the tax can be too high for the corporation to absorb, and one option is to try (operative word here is try) to pass this on to the consumer.

However, I would make the remark that although you may not be interested in a detailed cost breakdown, the corporations most certainly are and have done so. As well as performed a price discovery exercise which dictates the relationship between price and unit volume. When this price discovery is optimized, the production facilities are matched up to the optimal unit sales, and profit margins are determined. The indifference curves determines at what price the consumer will simply no longer be interested in purchasing the product. If this is exceeded, than no (or few) product is sold. Price discovery is intended to flesh out this point, and if a profit can if fact be obtained- which is not a given.

darbikrash, I didn't say that I wasn't interested, just that I didn't expect one. The only thing that really matters to me is my cost/value calculation. As an example, I can choose to buy ground chuck for hamburgers, or I can go to a high priced restaurant and get a fancy prime rib dinner. Based on my wishes and ability to pay, I can choose either. It doesn't matter to me what the chef's salary is or any of the other countless items that go into the final price. All that matters to me (as a consumer) is the price and my level of expectations. That said, I just purchased half a grass fed beef to put in my freezer. It was more expensive than the stockyard fed animals, but I felt it was worth the extra expense. I would be angry with the people who sold it to me if it turned out to be nothing more than a stockyard cow.

darbikrash wrote:

The bottom line here is that in the case of typical incremental taxes, the corporation will not pass these costs on simply because it is not in it’s best interests to do so, because to do so will disturb the economies of scale, force reduced sales, and as such, lower margins. In fact, with a properly optimized price demand curve, it will often be cheaper for the corporation to absorb the cost than pass it on- for the aforementioned reasons. And this is why the oft held belief that incremental taxes are simply passed on to consumers is not true.

The bottom line is that in the end the consumer determines price by either purchasing in sufficient quantities to enable a profit center, or not. If the price exceeds the indifference curve values, the consumer will not buy at all- and cares not whether the costs contain taxes, profits, or just raw material values.

In most cases, with discretionary goods, you will find that attempts to pass normal (whatever that is) taxes onto the consumer will fail, and do so because the unit volume of goods will decline, reducing profit margins in two dimensions; a.) Lower unit volume will reduce margins as the amortized costs will be shared among fewer units, reducing profit margin. Said another way, benefits of scale disappear when lower quantities of goods are sold, b.) These lower margins are now applied to overall smaller sales, a double whammy, as consumers will buy fewer numbers when the price is higher.

Yes, I understand that businesses need to produce sufficient profits in order to survive. I understand that higher prices will induce consumers to consume less. I understand that corporations can make conscious decisions to eat a cost, rather than pass them on to the consumer. If taxes are applied to all producers of a given good, they all have the impetus to raise prices to make their profits. If they forego profits long enough, they will be out of business. As I was trying to argue, when taxes are levied against corporations (high enough or long enough,) the consumer will pay higher prices for the product. In my way of thinking, the tax "effectively" got passed on to the consumer. I'll grant you that it isn't a direct connection, but the end result is the same. Here's what I wrote:

Grover wrote:

If all companies producing any given product are subject to the same tax increase, all companies will have impetus to adjust to a higher price point. The end result is that the consumer will end up paying more for the same product. Although the theory says that taxes aren't directly passed on to consumers, the end result is the same. Consumers pay higher prices.

darbikrash wrote:

But I would agree that if the tax gets high enough, the corporations will not find this to be true, and can no longer absorb the costs, but also realize that the consumer won’t buy it either.

Another related fallacy is that corporations are much more interested in markets and market potential than tax rates. Who cares if the corporate tax rate is 6% in Somalia if they can’t sell goods there because no one has any money? The market value and market potential contains much higher value to the corporation because indifference curves are very much stratified by income- some thing not recognized by classical liberalism. Selling into a market such as the US is the best deal going even at 35% tax rate. However, the corporations want it both ways, access to the lucrative market for sales, and then location of the labor force in a country with no regulation, low taxes, and most significantly low labor burden.

Ultimately, this model will cannibalize itself, as unemployment soars due to job outsourcing, income becomes grotesquely mal-distributed to a small number of actors, and an unstoppable chain reaction of events continues with declining wages and reduced purchasing power, ultimately destroying the value of the market and initiating the exodus of the corporations- with predatory precison to the next target country.

I appreciate your view here. Nonetheless, if you believe in free markets, you need to let them do what they do. The first thing I learned in Economics 101 was "TANSTAAFL - there ain't no such thing as a free lunch." Once all the jobs have been outsourced and the ability to charge purchases on credit has been exhausted, the fundamentals change to such a degree that the same corporations reevaluate their positions and adjust accordingly. If they don't, they won't be successful for long.

Grover

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Where do we go from here?

To all,

I don't like the situation that our country has allowed itself to enter. I don't expect the status quo to exist much longer. I actually hear friends and coworkers talking about this country's debt problems. That is new! Although they can't fathom the depths of the problem, at least they're aware of the surface. Congress will be forced to cut spending and raise taxes. They will try to kick the can down the road as long as they can. I expect that on August 1st just before midnight, President Obama and Congress will finally reach resolution. There will be phantom cuts to satisfy the Republicans and there will be an increase of the debt ceiling to allow continued operations beyond the elections of 2012. I'm expecting an increase to somewhere in the neighborhood of $16.5 trillion.

I'd really like to focus this discussion on likely scenarios and potential outcomes. What are the impacts of this level of debt ceiling increase?  Where and when will congress have to increase taxes? What may happen to interest rates? Any fallout from this? At what level of debt will the bond vigilantes awaken from their hibernation? Will consumers lose confidence? When will the world dump the dollar? - These are a few of the questions that race through my mind.

Any thoughts?

Grover

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Grover wrote:   I

Grover wrote:

I appreciate your view here. Nonetheless, if you believe in free markets, you need to let them do what they do. The first thing I learned in Economics 101 was "TANSTAAFL - there ain't no such thing as a free lunch." Once all the jobs have been outsourced and the ability to charge purchases on credit has been exhausted, the fundamentals change to such a degree that the same corporations reevaluate their positions and adjust accordingly. If they don't, they won't be successful for long.

Sorry to keep this going, you’ve made good comments but the concept is too important to let go.  It would seem we agree that if a tax is high enough (say for example 100%) this cannot be absorbed by the goods or service provider. What’s missing here is the notion that corporations actually set prices, which they can to some extent, but the final decision lies not with the corporation, but with the consumer. At some point (defined by an indifference curve) the consumer will just refuse to buy the product.

The manufacturer will then be unable to sell the product, as no one is willing to buy it. So the statement that “If taxes are applied to all producers of a given good, they all have the impetus to raise prices to make their profits”  is misleading, there is a vast difference from wanting to pass the tax to the consumer and actually being able to accomplish this. And again, the indifference curves tell you whether or not this will work. I submit that if the tax is high enough it does not matter if the corporation cannot absorb this cost, they cannot pass it on either, as the consumer will no longer buy it. This does not invalidate your example of variances in beef pricing, consumers can and do differentiate between quality levels and even brand identity, and are willing to pay premiums for product differences, but even these premiums have limits and are driven by the same indifference curves.

In a simplistic sense, we’ve seen some evidence of this with the 10% luxury tax of the ‘90s, which was disastrous. Now, this was a consumption tax, which is quite different than a corporate tax rate, but it illustrates the fallacy of applying an incremental tax across the board to consumers, who apparently unbeknownst to the government at the time, had already gone through a detailed price discovery exercise on the luxury goods that they were already purchasing. Simply adding the extra 10% consumption tax killed the market, although selectively some manufacturers did absord the cost to maintain market share.

This attempt to pass the tax onto consumers was by all accounts a massive failure, I don’t think there is anybody who would argue that this tax was or could have been successfully passed onto consumers- it’s simply not true.

Overall though, the argument is a little difficult to defend as it depends on the severity of the tax. At incremental levels (say 15%-30%) it can be easily seen that for most discretionary goods it is more advantageous for the corporation to absorb these costs to preserve sales volume for the reasons described earlier. Above these thresholds, there is simply no way a business can make a profit and absorb high taxes-on this we agree. But again, it is not correct to assume the consumer will absorb them either, they very likely will not.

So why is this so important?

In post # 40, we see that total corporate annual revenue is $28.6 trillion. Note that of this amount approximately 97% ($27.7 trillion)  is shielded from taxation of any kind. It goes directly into corporate coffers. The remaining 3% or so is then subject to some form of taxation, with the choice architects channeling the debate to whether this pitiful 3.1% should be taxed at 20% or 35%. One of the more frequent remarks is that even by taxing the corporations at 100% (of this 3% subject to taxation) no meaningful effect is seen towards the total deficit- which is quite true. However, this is the wrong argument, as 100% of zero is still zero, and the corporate revenue subject to taxation is very nearly zero.

While I recognize the need for cost of goods deductions as well as legitimate business expenses, I find these numbers (97% of the total revenue shielded from any taxation) well beyond credibility.

And the argument that increasing the taxation by digging into this bloated proportion will be simply passed on to consumers is step 1 in preserving the status quo.

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Update from FY 2008 #'s

Updated proft/tax numbers;;;;;

Who rules America

Not surprisingly, Wall Street and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America’s top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don’t repatriate their profits, they pay no U.S. taxes. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled. In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another “tax-repatriation” window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Ordinary working citizens with the lowest incomes are taxed at 10%.

I could go on and on, but the bottom line is this: A highly complex and largely discrete set of laws and exemptions from laws has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules. I am not optimistic.

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Tax the richest 1%

As F. Scott Fitzgerald once said: "The rich are different than you and me - they have more money."

http://www.commondreams.org/view/2011/01/20

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Corporate taxes are passed through to consumers

darbikrash wrote:

Sorry to keep this going, you’ve made good comments but the concept is too important to let go.  It would seem we agree that if a tax is high enough (say for example 100%) this cannot be absorbed by the goods or service provider. What’s missing here is the notion that corporations actually set prices, which they can to some extent, but the final decision lies not with the corporation, but with the consumer. At some point (defined by an indifference curve) the consumer will just refuse to buy the product.

At 100% tax, there is no profit ... regardless of the selling price; therefore, there will be no product being produced. If a business cannot make a profit, why for heavens sake would they bother? Business sets the floor price for which they're willing to sell the product. Consumers set the ceiling price for which they are willing to buy. If there is wiggle room here, there is commerce and both sides will be incentivized to maximize their particular needs. If the ceiling is below the floor, as product is removed from the marketplace, it won't get replenished.

If business taxes are reduced, a business' floor price drops. Using their fancy curves, they'll realize that they can increase profits if they sell for less and produce more. With the additional supply in the marketplace, the price must drop to clear inventory. The end result is that consumers benefit with a lower price.

If the greedy business decides to keep prices elevated, another business will see an opportunity to make profits in this particular field and will undercut the price. Some consumers will choose to switch to the new product, thus reducing the sales of the original product. The greedy business will then be forced to reduce prices to compete. Competition drives the sale price nearer the floor than the ceiling. The end result is that consumers benefit with a lower price.

darbikrash wrote:

So why is this so important?
 

In post # 40, we see that total corporate annual revenue is $28.6 trillion. Note that of this amount approximately 97% ($27.7 trillion)  is shielded from taxation of any kind. It goes directly into corporate coffers. The remaining 3% or so is then subject to some form of taxation, with the choice architects channeling the debate to whether this pitiful 3.1% should be taxed at 20% or 35%. One of the more frequent remarks is that even by taxing the corporations at 100% (of this 3% subject to taxation) no meaningful effect is seen towards the total deficit- which is quite true. However, this is the wrong argument, as 100% of zero is still zero, and the corporate revenue subject to taxation is very nearly zero.

While I recognize the need for cost of goods deductions as well as legitimate business expenses, I find these numbers (97% of the total revenue shielded from any taxation) well beyond credibility.

And the argument that increasing the taxation by digging into this bloated proportion will be simply passed on to consumers is step 1 in preserving the status quo.

I'd like to see businesses pay 0% tax in exchange for being politically neutered - hardly status quo. The profits will then be used to invest in the business or passed on as dividends to stockholders where that money gets taxed at their marginal tax rate.

From your numbers, we're talking a loss in revenue of approximately $228 billion (approximately 6% of federal expenditures.) You say that 97% of sales prices shielded from taxation is too high. I don't have a clue what an appropriate percentage would be. If you were God and could decree an appropriate level of taxation, what would it be? Please reduce the final taxation to a dollar value - e.g. $500 billion so we can see if it is significant enough to make a difference. I'm not interested in mere nibbling at the edges. Go ahead and run through your fancy curves and explain (in simple terms, please) how this significant increase in taxes won't raise the corporation's floor price so that consumers won't end up paying higher prices. If you can do this, I'll accept the premise that consumers are shielded from increased corporate taxes.

Grover

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Round and round

Grover wrote:

At 100% tax, there is no profit ... regardless of the selling price; therefore, there will be no product being produced. If a business cannot make a profit, why for heavens sake would they bother? Business sets the floor price for which they're willing to sell the product. Consumers set the ceiling price for which they are willing to buy. If there is wiggle room here, there is commerce and both sides will be incentivized to maximize their particular needs. If the ceiling is below the floor, as product is removed from the marketplace, it won't get replenished.

If business taxes are reduced, a business' floor price drops. Using their fancy curves, they'll realize that they can increase profits if they sell for less and produce more. With the additional supply in the marketplace, the price must drop to clear inventory. The end result is that consumers benefit with a lower price.

If the greedy business decides to keep prices elevated, another business will see an opportunity to make profits in this particular field and will undercut the price. Some consumers will choose to switch to the new product, thus reducing the sales of the original product. The greedy business will then be forced to reduce prices to compete. Competition drives the sale price nearer the floor than the ceiling. The end result is that consumers benefit with a lower price.

I can’t really disagree with any of this, it’s all standard free market stuff. However, we are not arguing the same points. You are advocating a scenario where corporations are no longer required to pay tax (at the corporate level) at all- you are advocating  0% tax.

This is not the argument that I am engaged in, I am saying that if you take the existing tax rate, whatever it is, lets use 20.1%, and raise it, within reason, that this additional tax revenue will not, in fact cannot,  be passed on to consumers. This is not the same set of conditions as you lay out, as the argument is an asymmetrical argument. It's not the same going up as it is going down.

The reason this is so is because there is no limit to how low a price a consumer will pay, but there is a limit as to how much he will pay. So to argue that if you reduce taxes to zero and lower the floor, yes, the cost to consumers will likely drop if in fact free market forces can convince actors to give up margin, but the inverse is not necessarily true, for reasons already well covered. There is most certainly a upper ceiling for which consumers will stop buying, and this exists for every product. There is no lower floor, consumers will happily look for zero cost.

And yes, one possible outcome is that the product can no longer be sold, if the manufacturer cannot absorb the extra tax, and the consumer won’t either, then you have a stalemate and commerce stop-which I thought was the point.. This is a decidedly different set of outcomes when taxes are raised rather than lowered..

To the larger point about how much tax is too much, well I don’t know either. But for the record I am incredulous with the ratios of untaxed income to total revenue- it’s simply not believable.

To the $228 billion in corporate tax revenue in FY 2008, this may indeed be a small percentage of total US expenditures, but is a large number in relation to the annual budget deficit, which runs about $1 trillion or so in the same (2008) FY- nearly a quarter which is a significant figure. I’m not suggesting that corporations carry all of the water, certainly cuts are needed, as well as an adjustment to social policy, but rather than me playing Monday morning quarterback, why not look at the budget outline in post # 37 in this very thread which covers the specifics, chapter and verse. Note the budget surplus forecast for 2021. Why couldn’t something like this work?


Back to your premise of zero taxation on corporations.  You know, I like the idea of “politically neutering” corporations from interfering with governance- just not sure how reducing taxation eliminates this. Intuitively, you would think this excess surplus value would be re-applied to buy yet more favoritism- a point already made by another poster,  how, exactly, is this prevented? I’d also point out the already existing mountains of cash that the big corporations are sitting on, represents surplus capital that is not being deployed, which is a very serious issue and goes directly to the crux of the problem- a fundamental failure of capitalism. Typically, corporations do not want massive reserves of capital as this means they are not optimizing growth and consequently increasing shareholder value. Put that money to work is the mantra. Well then, why is it not being put to work, and what makes you think giving them more money would incentivize them to “make additional investments” when the enormous amounts of capital they have now is sitting on the sidelines? Clearly, this would simply be used to increase margins with no reciprocal benefit.

Beyond these issues, we have to address the massive inequalities of wealth. How, exactly, is this addressed? Eliminating taxation on corporations would exacerbate this effect, as well as stifle public investment in infrastructure which corporations famously exploit. While interesting and arguably healthy to consider zero tax scenarios, in my opinion, they just do not work when the details are fleshed out.

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Can't Politically Neuter That Way

Grover wrote:

I'd like to see businesses pay 0% tax in exchange for being politically neutered

Doesn't work that way. The profits pass-through to the shareholders - especially majority shareholders - who then use the money to vote and buy influence on behalf of, and to favor, the corporations they control.

Poet

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Re: Round and round

At 100% tax, there is no profit ... regardless of the selling price; therefore, there will be no product being produced. If a business cannot make a profit, why for heavens sake would they bother? Business sets the floor price for which they're willing to sell the product. Consumers set the ceiling price for which they are willing to buy. If there is wiggle room here, there is commerce and both sides will be incentivized to maximize their particular needs. If the ceiling is below the floor, as product is removed from the marketplace, it won't get replenished.

If business taxes are reduced, a business' floor price drops. Using their fancy curves, they'll realize that they can increase profits if they sell for less and produce more. With the additional supply in the marketplace, the price must drop to clear inventory. The end result is that consumers benefit with a lower price.

If the greedy business decides to keep prices elevated, another business will see an opportunity to make profits in this particular field and will undercut the price. Some consumers will choose to switch to the new product, thus reducing the sales of the original product. The greedy business will then be forced to reduce prices to compete. Competition drives the sale price nearer the floor than the ceiling. The end result is that consumers benefit with a lower price.

I would have to take exception with this also. Yes its textbook free market stuff and I don't disagree but there is a speck of naivety here. The market is just more complex than this simple model.

Look at the big three automakers or the top three brewers or any commerce where there is only a handful of really big players and you'll see that they don't play by these rules. There is a way to run a pseudo monoply. Long ago the big players realized it was more beneficial to work together rather than fight each other through price wars. If each one of the players don't drop their prices but instead slowly raises them then they all benefit. In otherwords, spoken or non spoken agreements not to 'cross-the-line' subverts free market choice. Yes I know you can buy a Japanese car or a German beer but my point is this; in a free market everyone is looking for an edge and if you look hard enough you will find one. It just may not fit into the rules of the free market This is one of my main arguments with staunch Libertarians that feel that the 'free market' will cure all ills.

There is a gray area to free markets and that is where the real advantages lie. So giving a corporation a free pass on taxes because it will help commerce...I don't think so.

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It is absolutely none of

It is absolutely none of your business what a private company does with it's money.

If it wants to hire workers, that is none of your business.

If it wants to buy-back shares, that is none of your business.

If it wants to pay out dividends, that is none of your business.

If it wants to buy beer and hookers, that is also none of your business.

It is not your money.

We've tried the anti-business ideas for decades. We've tried the extortionary tax rates. We've tried the outrageous regulations. We've tried all of that and the result is record unemployment, poverty, and destitution.

We should lower the corporate tax rate to 0% and throw a parade for every small businessman who creates jobs.

We should stop wasting time trying to determine how to confiscate someone else's money and start rewarding the entrepreneurial spirit in America. 

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corn1945 wrote: It is

corn1945 wrote:

It is absolutely none of your business what a private company does with it's money.

If it wants to hire workers, that is none of your business.

If it wants to buy-back shares, that is none of your business.

If it wants to pay out dividends, that is none of your business.

If it wants to buy beer and hookers, that is also none of your business.

It is not your money.

We've tried the anti-business ideas for decades. We've tried the extortionary tax rates. We've tried the outrageous regulations. We've tried all of that and the result is record unemployment, poverty, and destitution.

We should lower the corporate tax rate to 0% and throw a parade for every small businessman who creates jobs.

We should stop wasting time trying to determine how to confiscate someone else's money and start rewarding the entrepreneurial spirit in America. 

Hmmm...

Is it my business if I have to bail them out with my money?

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No one forced you to bail

No one forced you to bail them out. We could have decided three years ago to let the system clear. Instead, we've wasted trillions of dollars propping up failed enterprises (banks and automakers etc). We could have let the automakers fail (this is the second time Chrysler has been bailed out) and protected depositors while letting the banks fail. We did not do that.

The irony here is that the liberals rant incessantly about the "wealth gap." Well, you could have permanently fixed the wealth gap by wiping out the paper wealth of the people you despise so much! Sure this would have hurt that average Joe but they are hurting anyway. So what did you gain?

The American people decided (by returning to office virtually all of the crooks who voted for TARP) that they are OK with the current arrangement.

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I take it your a disgruntled

I take it your a disgruntled small business owner.

No one forced you to bail them out. We could have decided three years ago to let the system clear.

Yes I was forced to participate in the bailout. Yes we should have foregone any bailouts but our 'representatives', both Republican and Democrat decided bailouts were a good idea. Surprise, surprise.

For the record I'm not a Liberal.

So you think corporations like AIG, GM, GE and Goldman Sachs should operate tax free? Why? If the bailouts bother you then why doesn't a tax free environment for crooks bother you?

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The United States of America

The United States of America was not forced to bail out failed enterprises. The American people chose that and then endorsed that. Now they have to deal with the consequences.

It is irrelevant if I think GE, AIG, etc should pay tax because they don't pay any now and won't pay any in the future.

All we are doing is punishing the small guy with the taxes and regulations. The large corporation simply don't follow them or pay armies of lawyers and accountants to work around them (General Electrics).

I don't own a small business but I work for one. I see the economic force that they are but it pains me to see the open hostility this country has for businesses of all sizes.

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I don't own a small business

I don't own a small business but I work for one. I see the economic force that they are but it pains me to see the open hostility this country has for businesses of all sizes.

I don't think the general public has any hosility for small businesses whatsoever. I empathize with your anger and frustration.

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flat tax

corn1945 wrote:

We should lower the corporate tax rate to 0% and throw a parade for every small businessman who creates jobs.

Why 0%?  Why not a flat 10% for individuals and corporations with no deductions, no credits, no worming out of one's fair share, whether rich, poor, or in between?  I know, I know, then we put the bookkeepers, accounts, tax attorneys, IRS employees, etc. out of business.

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the American people DID NOT chose that

corn1945 wrote:

The American people chose that and then endorsed that. Now they have to deal with the consequences.

The American people DID NOT chose that.  The mail to Congress regarding the bail-outs ran 100:1 against, one of the most overwhelming pluralities in the history of American politics.  But Congress chose to ignore the mandate given them by the public.

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How many of those

How many of those representative were re-elected?

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There is definitely hostility toward business.

JohnnyOxygen wrote:

I don't think the general public has any hostility for small businesses whatsoever. I empathize with your anger and frustration.

Maybe not if you say, hey are you angry at small businesses?  But say, hey those evil corporations need to pay taxes, and out comes the hatred.  It's the fact that so many people are anti-corporation that they don't realize the primary people hurt by our regulations and taxes are the small business.

Just sitting here listening to our President pushing this anti-corporate view - talking about how corporations should pay their fair share!  More of the same, particularly the starting line with "It's not my fault, I inherited it".  I sure hope the rest of the population is getting tired of the whining about how it's not his fault.  ARRRGGG...

I see he is also talking about default, instead of being realistic about what not raising the debt ceiling really means....  While I hate O'Rielly, I think he is a blow-hard, he did have someone on today (it was in the background) that the problem is that the media is not calling the politicians on the default terminology.  They discussed whether it was ignorance of economics, or just parroting Obama and Geithner.

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'Free market' blow hards

'Free market' blowhards don't know what Oligarchy means. They also don't understand that unregulated markets are self-eliminating. But going a step further, capitalism will eventually and invariably lead to monopolies, regardless of whether there were safeguards put in place to prevent such a thing. The accumulation of capital buys power which corrupts all governing/regulatory bodies.

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corn1945 wrote: How many of

corn1945 wrote:

How many of those representative were re-elected?

I think we are on your side here.

LoL. Are you angry with us here or just the situation?

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it's only an illusion

corn1945 wrote:

How many of those representative were re-elected?

Ours wasn't ... but he chose not to run for re-election.  But the new one is no better and even less responsive to the voters than the old one.  Even if not re-elected, do you think the new office holder would offer substantially, fundamentally different choices?  How different are the Democrats and Republicans?  Is Obama's war policy much different than Bush's?  You no longer live in a democratic republic with a functioning constitution and a representative government.  And you no longer have a real choice by virtue of your vote.  You have the illusion of choice. 

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despiccable

rhare wrote:

Just sitting here listening to our President pushing this anti-corporate view - talking about how corporations should pay their fair share!  More of the same, particularly the starting line with "It's not my fault, I inherited it".  I sure hope the rest of the population is getting tired of the whining about how it's not his fault.  ARRRGGG...

I see he is also talking about default, instead of being realistic about what not raising the debt ceiling really means.

It is interesting how there is talk of cutting SS, Medicare/Medicaid, military salaries, veteran's benefits, etc.  There is no mention of cutting Cabinet and other executive branch salaries and benefits, eliminating czar positions, cutting congressional and senatorial salaries and benefits, cutting judicial salaries and benefits nor of closing useless government departments like the Department of Energy, firing or laying off unproductive federal government workers, stopping federal subsidies to business interests, closing overseas military bases, completely ceasing overseas hostilities, getting rid of the TSA and using a cheaper and more effective Israeli model, etc., and most importantly, getting rid of the Federal Reserve bankster cartel.  It's all BS.
 

We have no leaders in Washington.  True leaders would express some solidarity with their people by taking at least a symbolic cut in salaries, benefits, and pensions.  None of them have and most likely, none of them will.  They are despiccable.  

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corn1945 wrote: It is

corn1945 wrote:

It is absolutely none of your business what a private company does with it's money.

If it wants to hire workers, that is none of your business.

If it wants to buy-back shares, that is none of your business.

If it wants to pay out dividends, that is none of your business.

If it wants to buy beer and hookers, that is also none of your business.

It is not your money.

We've tried the anti-business ideas for decades. We've tried the extortionary tax rates. We've tried the outrageous regulations. We've tried all of that and the result is record unemployment, poverty, and destitution.

We should lower the corporate tax rate to 0% and throw a parade for every small businessman who creates jobs.

We should stop wasting time trying to determine how to confiscate someone else's money and start rewarding the entrepreneurial spirit in America. 

"Private" being the key word here, verses public - and I say hooray.  Private is private.  By the way, who is buying the beer and hookers ?  Are they looking for people ?

It is all madness.  After what I saw today at work and on TV this evening I have about decided the entire place has gone insane.  On CNBC they praddle on like basically nothing is happening and if there is a problem the government will fix it all up good.  On TV I see Obama talking about I don't know what.  The entire evil rich people and evil rich corporations and the entire class and business warfare gig is about to turn my stomach.  It has become so predictable I could have written his speech - I really could have.  The repub speech ?  Oh well.  At least they are trying but failing.  It is not an easy thing.  Nobody in a high position in DC is getting on TV and trying to explain the situation to the people.  We need a Ross Perot type to get a 30 minute block of time on TV with charts that people can see and understand and try to explain it.  It is amazing how many people do not have a clue what is going on.  They just think it is typical politicians arguing typical political BS and they just tune it out.  If you try to explain it to them they think there is something wrong with you.

The dems want a huge debt ceiling increase for pure political reasons - they do not want the people of America thinking about this stuff before an election.  I think that is exactly when the people of America should be thinking about this stuff so I am very much against a massive debt ceiling increase.  The dems want 1.2 trillion in tax increases.  I have never seen an increase in revenue to a government result in a decrease in spending.  It simply does not happen.  So, I vote for no tax increases on anyone or anything.  We do not have a revenue problem, we have a spending problem.  We have to cut.  We have to cut big time and we have to start cutting soon.  No commissions - that is nonsense.  It is going to really hurt.  It is going to be tough to tell old people they get less social security and middle aged people they are going to get even less than the old people.  It is going to be tough to cut medicare and medicaid.  It is going to be tough to cut the military which will encourage radical countries to act up more.  It is going to be tough to cut food stamps, section 8 housing, WIC, and the other hundreds of social programs people have become dependent on.  These cuts will definitely have major impact on people.  Some will die.  Many will suffer.  And, it is going to happen whether we like it or not.  It is going to happen because it has to.  Either we will cut in an organized manner through some type of legislative process or it will be cut in a disorganized manner through inflation and financial crisis.

I read an article a while back that analyzed what desperate governments have done in the past when these types of conditions have happened - not a pretty picture.  I think maybe we ought to start thinking about that.  They are going to come after the retirement account money.  They may declare marshal law and do just about anything when riots break out in our cities.  Crime will go up.  This has already started.  Desperate people do desperate stuff just like desperate governments do.  No matter what the DC people do the numbers are against them to the max.  Arguing about peanuts cuts that are years away is a total waste of time.  Events seem to be moving faster than the politicians can manage.

At least that is what it looks like to me today.

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There is at least one leader...

ao wrote:

We have no leaders in Washington.  True leaders would express some solidarity with their people by taking at least a symbolic cut in salaries, benefits, and pensions.  None of them have and most likely, none of them will.  They are despiccable. 

Actually there is one, maybe two now that Rand Paul is in office (emphasis mine):

[quote=Who Is Ron Paul]

Brief Overview of Congressman Paul’s Record:

  • He has never voted to raise taxes.
  • He has never voted for an unbalanced budget.
  • He has never voted for a federal restriction on gun ownership.
  • He has never voted to raise congressional pay.
  • He has never taken a government-paid junket.
  • He has never voted to increase the power of the executive branch.
  • He voted against the Patriot Act.
  • He voted against regulating the Internet.
  • He voted against the Iraq war.
  • He does not participate in the lucrative congressional pension program.
  • He returns a portion of his annual congressional office budget to the U.S. treasury every year.

Quote:

There is no mention of cutting Cabinet and other executive branch salaries and benefits ...

You seem to ahve left off golf vacations for the president.

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