Posted on 10/17/2011 9:55:35 AM PDT by DTogo
Using a simple example of a farmer selling a ton (2000 pounds) of wheat to be made into 2000 loaves of bread, let’s assume there are 4 market participants before the wheat/bread reaches the consumer: 1) Farmer, 2) Miller, 3) Baker, 4) Grocer. Each needs a $500 net profit to pay costs stay in business, and this profit is taxable.
Because profit is taxable, each market participant needs to “gross-up” that $500 net profit to pay the current 35% federal tax rate, so $500 becomes $769.23. Under Cain’s plan the $500 is grossed up to pay the new 9% federal tax rate and becomes $549.45. So let’s add them up:
Farmer’s $500: $769.23 vs. $549.45
Miller’s $500: $769.23 vs. $549.45
Baker’s $500: $769.23 vs. $549.45
Grocer’s $500: $769.23 vs. $549.45
Under the current IRS system the loaf costs the consumer $1 of net profits and $1.54 in taxes per loaf = $2.54/loaf to the consumer.
Under Cain’s plan the same $1 loaf has $1.10 of taxes = $2.10/loaf on top of which a 9% tax would be levied = $2.29/loaf to the consumer.
Two loaves of the same bread: $2.54 at the IRS Store, $2.29 at the Cain Store. Which one would you buy?
- the accounting man-hours/expense SAVED not having to comply/file under the current IRS system
- the payroll tax NO longer paid to employees
- the lower cost goods paid to other suppliers under "9-9-9"
FYI, for the 9-9-9 whiners without a calculator.
I just wanted to post that picture before all the Perry supporters get here and dispute your 100% correct analysis.
999 explained:
Read more: 9 responses to 9 false attacks on 9-9-9 http://www.wnd.com/index.php?fa=PAGE.view&pageId=356825#ixzz1b1UDSiTl
Good article!
I did the math of the makeup of congress. It tells me that this plan is dead in the water.
I also did some math on Cain's cash on hand. He will need a lot more than $1 million to defend against the onslaught of ads showing him being against the national sales tax before he was for it.
You keep posting the same old untrue garbage regardless of how many times it has been debunked. +1 for persistence, -1000 for integrity.
I said the numbers in congress show this plan is dead. You say that's untrue. So you're saying Cain has the numbers in the Senate?
I said Cain needs more than $1 million in cash on hand to fight the ads that will show him being against it before he was for it. You say that he doesn't?
What did I say that was untrue or that was garbage??
That Cain only has 1 million (he has recently received much more) and, that he was opposed to a national sales tax before he was for it. He was only opposed to the national sales tax if it was placed on top of the current tax code. Like so many here at FR, you take quotes out of context and go with it.
The numbers in theSenate with the election so we do not know what the numbers will be, but most likely they will be better than now.
the costs are deducted from the gross, so it doesn’t have as great an impact on the final price for the farmer.
What it does do though, is make it possible for the farmer to engage in lines of business that didn’t make financial sense prior to the tax cut. These additional lines of business increase the diversity of products in the marketplace and lower prices through competition.
Also these new lines of business for the farmer result in additional workers all buying products too.
Lowering these taxes sets off a cascading multiplier affect through the entire economy. Kind of like lowering the interest rate on your home from 35% to 9%, it is a big mortgage payment reduction ... allowing you to do a lot with the money you are saving.
I can only go off of what was reported. He can say that he has 6 trillion in donations, but until he reports it, I won't go off of that. So, again, was it false that he reported that he has $1 million on hand this past Saturday? Is it true or untrue that he will need more than what he has to run this campaign?
Regarding him saying less than a year ago that a national sales tax would be the worst idea, I just said that it will be used against him, and that he'll need more money to combat that. Is it true or untrue that it will be used against him?
I said that Cain doesn't have the numbers in the Congress to pass this plan. Is that true or false?
So, again, what did I say that was false and garbage? I made a pretty accurate observation of what's going.
Cain said in the most recent debate that this will pass. One has to assume that he thinks he has the numbers to pass it. The supporters of this plan will need 60 votes to pass this bill. I'll go out on a limb and say that we don't have that, and that we won't have that in January 2013.
The "math" of Congress after 2012 is unknown, and might favor a landslide winning new president's agenda.
I also did some math on Cain's cash on hand. He will need a lot more than $1 million to defend against the onslaught of ads showing him being against the national sales tax before he was for it.
Yeah, math is hard for those who still think it's a 9% tax on top of the currently taxed $2.54 loaf of bread.
Yeah, I was trying to keep it simple, but the math still adds up.
Not very confident in the power of the Tea Party or maybe even a little common sense coming to some Democrates after the election. I hope and think that we will have enough after the election. I am a glass half full kind of guy.
You have 2000 loaves of bread, which you indicate has a price entirely made up of profits and taxes -- meaning none of the participants had ANY costs associated with their part of the process; they all made pure profit on their work.
I would hope pointing that out immediately reveals the fatal flaw in your analysis. But in case it doesn't, let's re-do your example, only with realistic numbers.
Farm Business Financial Performance is a good generic source of information about farming. It indicates that a typical farm actually makes no real profits, but do make money beause of various tax deductions and supports. The best profit margins are with the largest companies, but the highest margins are around 16%, meaning for every dollar in price, the best farms make 16 cents.
What do farmers pay in taxes is an old reference from 2002, but it will give you a flavor for actual taxes. They mostly pay property taxes, and then personal income taxes (because most farms aren't taxed as corporations, although the corporate farms are). The number in 2002 was 26% average, not 35%.
On the corporate side, here is a news report for a typical agro-business, Archer Daniels Midland, which tells is that in their last year, They had a gross profit of 2 billion on revenues of 80 billion. That's a profit margin of about 2.5%. Since they do milling and baking, we can use their numbers as indicative of the profit margin for those companies as well. Their "gross profit margin", according to this chart, is 4.8%. I'll use the higher number for fun.
Here's a news story about Safeway Groceries, telling us that in the last quarter, they made $130 million on sales of $10 billion, for an operating profit margin of 1.3%. That was a fantastic report, and their stock went up. Groceries are a low-profit business. THeir gross margins dropped to 27%, but that doesn't define what is subject to taxation. Still, I'll use that number for our analysis.
So, let's re-work your numbers, but with actual profits calculated from the gross profit margins. We'll stick with your 35% tax.
The farmer makes $500 on the wheat, of which will generously give him a 16% profit, or $80. The miller/baker each make $500, and get a profit of 4.8%, or $48. The grocery makes $500, and gets a profit of $135.
So, the total profit subject to tax is 80+48+48+135, or $311 dollars, and the tax of 35% comes to $108.85.
So the total costs of the 2000 loaves of bread is $2108, or about $1.05 per loaf. I know this is low, I'm guessing we should have bumped the "$500" up to $1000, but the numbers will all work out the same anyway for comparison.
Now, under the Cain plan, the tax is only 9%, so the cost of the product to market is $2027.99, or $1.014 per loaf.
But Cain puts a 9% sales tax on the entire value of the loaf. That's 9.1 cents, for a total price on the loaf of $1.10. That's 5 cents more per loaf, not 25 cents less.
The mistake you made was assuming that the cost of a product was entirely profit. In the real world, there is very little profit in anything sold, except maybe software. This is why Cain's plan is revenue neutral. Instead of taxing profit by business at 35%, we drop that to 9%, but even if profit is 25% of the cost of something, when we taxk the entire cost by 9% to the consumer, we are taxing 4 times as much value (the entire cost of the item), and 4*9=36%, a higher amount than the corporate tax rate. When added to the 9% the corporation still pays on profit, you get an equivalent tax rate of 45%, a 10% tax increase.
Again, you claim he has “received much more”. Where are the latest figures you are citing, or are you leaking internal campaign information for us?
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