...as well the employer's SS/Medicare excise taxes on payrolls paid are repealed releasing those taxes and costs associated with them. Agreed. And compliance costs would diminish greatly. But if a company makes say a 15% rate of return (net) and is taxed at 35% on that return the effect of eliminating income taxes is 5.25% of that corporation's income statement. Add another, what is it, 7% of its payroll which is say 50% of its expenses and you get another 3.5% in savings. That's just 8.75%. Add another 1% in compliance cost and we're up to 9.75% of savings, which is significant but how does that translate into lowering prices by 23%? I know there are companies that are well over and under these numbers. I'm just using hypo's.
I know there are companies that are well over and under these numbers. I'm just using hypo's.
And the study's 20% first year fall in the price that producer receive for there products is an average across many business sectors as well:
The numbers cited in any study can only be taken as average unless presented in an explicit distribution table or in a graphical form as above.
In your hypo by the way you must also take into account that a business' inputs drop in cost as well as the direct reductions from tax repeal he sees in his own operations.
The break even point is obviously 23% of gross receipts.
If a RETAIL company would pay 23% gross receipts in taxes under the existing system, it would be able to drop his prices by 23%, and keep wages, profit, and the total salesprice (after tax) the same as it was before.
If a RETAIL company pays more than 23% of gross receipts in revenue, then they would be able to have extra money to apply to profits or even further price decrease. If it is less than 23%, then they could not reduce their price by 23% without either losing profit, or reducing wages.
Presuming the 15% net company of your example is representative of an average company:
It's costs are 85% of gross receipts
Half of its costs are payroll, half other goods and services. (42.5%)
You could expect all of the other goods and services they spend on to also reflect the 9.75% reduced price. 42.5% x 9.75% = an additional 4.14%, added to the 9.75% would bring the total up to 13.89%.
So with the total savings being 13.89, you would be able to expect the same to apply again, so we'll have to recalculate how much savings on other costs would be. 42.5% x 13.89% = cost savings of 5.9%, added to the 9.75 for a total of 15.65% total savings.
So, we recalulate again, 42.5% x 15.65% = 6.65, plus 9.75 is a new cost savings of 16.4.
Run it through again and it's 16.72... Run it thourgh again and...
I don't remember how to run the calculus on it, but I keep recalculating the sum and it's limit is right around a 17% savings for the company in your example.
Someone who uses calculus everyday can maybe put up what the limit of the sum would be.
I asked earlier if anyone knew the national average for (tax paid/gross receipts). If it is around 23% I think the wages must drop argument is not true. If it's significantly lower, then it would seem valid.