Posted on 08/22/2005 6:53:28 PM PDT by RobFromGa
Dear pigdog,
"Nonsense, s-test."
LOL. Because you say it? * chuckle *
"It's unfortunate you can't understand a simple example of cascading of embedded taxes which do not even include paroll taxes or commpliance costs."
I understand your example just fine. Better than you do. It comprises profits and taxes only. So, wonder of wonders, it has all "embedded" profits and taxes!! LOL.
Your example is the classic example of "GIGO," garbage in, garbage out.
Make a spreadsheet with real world, realistic profit margins, value added, and effective tax rates, and you'll see "embedded" tax costs of a couple of percent. If I have time to waste later, I'll do it for you.
However, we actually KNOW the embedded cost of corporate income taxes in the US. It varies from year to year. In recent years, it's been as high as nearly 2%, and as low as 1.3%. It's the percentage of GDP that's paid in corporate income taxes.
"Whatever value might be added is encompassed by the example and the fact you can't/won't see that changes nothing. In asddition, the fact that you are not a Sub C corp changes nothing. You business still accrues tax liaibilities even though they may be paid via your 1040. The effect of those taxes still remains in the business and pretending it does not is (at the very least) shortsighted."
I think you mean Chapter C corporation.
In any event, why don't you ask groanup's opinion of that? He seems to think that if you're not paying corporate income taxes, well, you're not paying corporate income taxes.
Why don't you explain for everyone here your theory of why all other workers should get back all their personal income and payroll taxes, but small business owners using Subchapter S corporations, LLCs, partnerships, and proprietorships, should not get back their personal income and payroll taxes?
"The effect of those taxes still remains in the business and pretending it does not is (at the very least) shortsighted."
You assert, assert, assert, in the face of all evidence and reason arrayed against you. LOL.
"As for the C-corp figures you present, I can only offer a big yawn and say 'so what'. If those are correct figures (and I doubt they are),..."
Look 'em up yourself.
"...there are many tax-abatement stunts that can be used (frequently short term ones) but over a longer term the taxes would most likely go back up."
Nope. These businesses just don't pay a lot of taxes. That's all.
" According the The Institute for Taxation and Economic Policy for 2004:
'ITEP's new report examines the U.S. profits and federal income taxes of 250 of the nation's largest and most profitable corporations over the 1996-98 period. Although big corporations ostensibly are supposed to pay 35 percent of their profits in taxes, the 250 companies in ITEP's survey paid only 20.1 percent in 1998. '"
I don't disagree with that.
You are confused, pigdog. You have confused "to pay 35 percent of their PROFITS in taxes," with "percentage of their REVENUES in taxes."
Wal-Mart paid nearly 30% of its profits in federal corporate income taxes. Nearly THIRTY PERCENT.
But, its profits were only 5.6% of its revenues.
For every $100 of sales Wal-Mart makes, they make a pre-tax profit of about $5.60. THAT'S their profit. That's all. And of that $5.60, they pay about $1.60 or so in federal corporate income taxes.
So, if you get rid of the corporate income tax, the price of $100 of Wal-Mart stuff could conceivably fall to $98.40.
Read what I've written very carefully, pigdog. You are confusing REVENUES with PROFITS.
It doesn't matter if the tax rate on profits is ONE HUNDRED PERCENT (the absurd case). If profits are only a very small part of revenues, then taxes will only be a very small part of revenues.
sitetest
That should make you the #1 corporate taxpayer in the country. As a nation we collect less than $200 billion in corporate taxes.
"But its not so good if you have accumulated wealth that just took a 17% or so dive."
But if your accumulated wealth is in equities which increase substantially in value during the first two years of the FairTax, that pretty much wipes out any differences in how much you pay for bread, milk, socks and shoes during that two years, doesn't it?
Here come the attacks from the SQLs who will accuse me of promoting the FairTax as a cure-all when I point out another benefit. Flame away, guys, I have my asbestos boxers on!!
You are again arguing under the assumption that the FairTax is being described accurately. I am not.
Let me ask you an honest question: Just on the crazy chance I am right and the average worker were to take home 25% more income, and retail prices were to go up 17-20% (with the Fair Tax included) would you still support the Fairtax plan?
"For every $100 of sales Wal-Mart makes, they make a pre-tax profit of about $5.60. THAT'S their profit. That's all. And of that $5.60, they pay about $1.60 or so in federal corporate income taxes."
That assumes no cost savings from Wal-Mart's suppliers which get passed up the supply chain. To the extent that Wal-Mart is selling imports, that is a reasonable assumption. However, to the extent that they buy US produced goods, it isn't reasonable at all. It may also very well be that because of the price shifts which will make US produced goods more competitively priced, more of Wal-Mart's stuff will be US produced.
I have no interest in debating what the macro-economic effects of this plan will be on the future equity markets until we are able to agree that the plan as described is based on a fundamental misrepresentation regarding the effect on immediate retail prices.
A company is a company is a company. The suppliers don't have any way to save more than 10% on cost either and that is assuming 100% domestic production.
Of course, the foreign TV or furniture or whatever will go up almost 30% overnight. And gasoline made from foreign oil will go up 15-20%.
Dear groanup,
"I never said there was."
Yeah, I know. I just was making the point that I absolutely don't accept that as a premise."
"Go back and read my post. 10% is what Rob came up with."
He was being generous.
"FICA savings plus compliance."
Right, but we'd all originally agreed, just ask pigdog, that workers would get back 100% of their taxes, including the employer's side of FICA and Medicare, because we all know that the money really comes out of the workers, anyway.
And that 7.65% was nearly all of the 8.8% that he could possibly get to, which he then rounded up, generously, to 10%.
"How much would Microsoft save if it didn't have to buy low income tax credits to offset its tax liability?"
I'm unaware that Microsoft "buys low income tax credits." Please document this.
However, I AM aware of "low income tax credits" as they apply to rehabilitation of housing, and renting it to poor folks. If you want to discuss this, I'm happy to, as I'm seriously thinking about delving into this part of the real estate business if I sell my current business.
When I look at Microsoft's financials, I see they actually do pay a ton of corporate income taxes. They are the exception to the rule. They pay fully 33% of their pre-tax profits in federal and state income taxes. If they're buying "low income tax credits," they aren't using 'em right.
"Also, how much would MSFT save if it could get rid of its tax department?"
Probably millions and millions of dollars. But much less than 1% of its revenues.
Microsoft's accounting is pretty straightforward compared to other companies of similar size. So are their taxes. At least compared to other companies with $36 billion in revenues.
sitetest
Nice job, PD. One can always quibble about the assumptions, but your example clearly illustrates how tax costs get passed up the supply chain. I would hope that those SQLs who refuse to acknowledge the validity of the concept of tax costs cascading can finally concede that point. We can debate the magnitude of the costs which get passed up, but it seems to me that denying the existence of the principle is plain stubbornness.
As you point out, the numbers are for corporate income taxes only and they don't include payroll taxes and compliance costs.
They also don't include state taxes, which will harmonize with the FairTax in most cases, creating even more savings for US producers.
"Of course, the foreign TV or furniture or whatever will go up almost 30% overnight."
We currently have a tax system which is biased toward foreign producers at the expense of our own producers. The FairTax would put them all on a level playing field. It sounds like you have a problem with that. Why do you object to creating millions of good paying jobs here in the USA?
How do the Chinese get any savings under the fair tax to pass to Wal-Mart?
For a business there is a difference between cash flow and tax profit/loss calculations. If you buy a $50,000 car, it is listed on your balance sheet as an asset and it goes down in value over time on the balance sheet. During that time, you are hopefully getting more value from the car than the amount of asset you are losing. From a cash flow point of view you spent the money when you bought it. The money needed to be in your checking account. But, your company is not allowed to "expense" (write-off) the car as a business expense all in that first year because it still has value on your asset sheet.
The idea is to show the profitability of your company more accurately. You end up getting to write-off the entire $50,000 from your profit, but you do it a little bit each year.
One of the provisions of the Bush 2001 and 2002 tax bills was the ability to accelerate depreceiation on business purchases (to allow you to capture the business costs sooner and encourage people to buy things for their business and stimulate the economy. And it worked.
Hope this helps. I just tell my accountant each year what I spent on capital expenses and when they were put into service, and he sticks them in the software and it spits out the proper depreciation on the corporate tax returns.
You don't own a business, obviously. Or if you do, you just magically operate in a bubble with no competition! Must be nice...
"None of the FairTax crowd can identify any such thing as embedded tax costs that are not income or payroll taxes..."
Sure we can. We have stated many times that the compliance costs of the current system are enormous and that they get imbedded, also. Can you explain why income and payroll taxes cannot legitimately be counted? Is that a rule that you just made up?
You must be kidding, that spreadsheet is out of touch with reality and has already been discredited completely.
The opposite is actually true. You currently lease because the depreciation rules on autos limits the amount you can depreciate a year. Under a lease, you can expense every penny you spend on it. The rule is dumb. It was intended to stop people from buying $50,000 BMWs and depreciate them as a business expense. But now what is considered luxery is a Ford Escort. Then again, there were great rules last year that allowed you do immediately depreciate giant SUVs.
"That assumes no cost savings from Wal-Mart's suppliers which get passed up the supply chain. To the extent that Wal-Mart is selling imports, that is a reasonable assumption."
"How do the Chinese get any savings under the fair tax to pass to Wal-Mart?"
What part of the second sentence above do you not understand?
Rob, Are you going to let us know if you get a response and share it with us?
I was simply making the observation. I was not debating the merits of foreign goods going up 30%. Since I believe that domestic goods are going to go up almost 20%, the relative difference is not so great.
I do think that oil and gas (imported) could be a problem because they are a cost that goes into many things.
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