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To: pigdog; Always Right; lewislynn; groanup; Your Nightmare; RobFromGa

Dear pigdog,

"As I've told you before, percentage of revenue is meaningless when it comes to embedded taxes."

LOL. No it's not. Not if you want to talk about "embedded taxes."

Companies don't sell their profit. They sell stuff and receive REVENUES in return.

Wal-Mart sold about $288 billion worth of stuff last year.

That was their REVENUE. That is approximately the sum total of all the prices they got for stuff that they sold in all their stores for the year.

It's YOUR spreadsheet that looks at tax as a percentage of PRICE, pigdog. Revenues are just the sums of all the prices received on all sales.

When someone goes into a Wal-Mart and spends $100, that $100 is REVENUE, not PROFIT. Profit is only a small piece of the sales revenue (in the case of Wal-Mart, about $5.60).

Do you understand that Wal-Mart doesn't actually keep all the revenue they take in, as profit?

On that $285 billion in sales, they made about $16 billion in pre-tax profit. They paid around $4 - $5 billion in federal corporate income taxes.

That's around 1.6% of REVENUES.

That's the relevant statistic, pigdog. Why? Because if you bought $100 worth of stuff at Wal-Mart, about $1.60 would be Wal-Mart's federal corporate income tax.

That's the percent of the $100 that someone spent that went to pay Wal-Mart's federal corporate income taxes.

If you get rid of the federal corporate income tax, that's the amount that could be saved on the $100 of purchases: $1.60, 1.6%.

"The correct figure to use is the amount subject to tax ('profit margin' in the example) times tax rate ("tax rate" in the example)."

Yes, as I explained to you.

The "amount subject to tax" is the TOTAL PRE-TAX PROFIT, not the AFTER TAX NET PROFIT.

Your "34.4%" is on the AFTER TAX NET PROFIT. The amount of money paid in corporate federal income taxes is actually a part of the pre-tax profit, pigdog.

The "amount subject to tax" is actually 44 cents - the TOTAL PRE-TAX PROFIT. And 11 cents of that is 25%, not 34.4%.

"Your attempt to redefine the example isn't going to work - mainly because it is not related to how taxes are derived. You'd no doubt LIKE to show taxes as a % of revenue, but that ain't the way it's done so stop the idiocy. You're fooling no one (except yourself - if you genuinely believe that)."

* chuckle *

Anyone who actually understands this debate knows who is fooling himself.

I'll give you a hint, it ain't me.

Anyway, again, your spreadsheet shows federal corporate income taxes as 11% of revenues. I challenge you to find 20 Fortune 500 companies with federal corporate income taxes of 11% of revenues or higher. I'll find 20 with federal corporate income taxes of 5% or lower. If we both get 20, we'll keep going until we each run out.

You should be able to demonstrate very easily that there are many, many companies that pay 11% of their revenues out in federal corporate income taxes, as you've stated that this is the norm.

I betcha you can't.


sitetest



452 posted on 08/24/2005 4:25:32 PM PDT by sitetest (If Roe is not overturned, no unborn child will ever be protected in law.)
[ Post Reply | Private Reply | To 444 | View Replies ]


To: sitetest

Several things wildly incorrect in this latest post of yours.

First, it's not MY spreadsheet, but one I like because it clearly shows the embedded tax effects and it is clear and should not be misunderstood by most (yourself excluded, apparently).

"Companies don't sell their profit"??? Actually I don't recall saying they did. That's also irrelevant to this discussion which is about embedded taxes. These taxes are derived by using the tax rate in the example (called "tax rate") and multiplying it by the amount shown as "profit margin" (if that term causes you to not understand the clear meaning of the example, call it "smudgepot" or any other term you'd like). Same with the term "tax rate" for that matter.

Obviously something is warping your mind since you seem to misunderstand how taxes are calculated - by dividing the amount due in taxes by the amount subject to taxes - both of which show up in the example as written. It nowhere says that taxes are derived a percentage of revenues for the very simple reason that they are not.

Give it up pal. The example I posted clearly shows the mechanism and it has nothing to do with revenues per se. It has to do with the amount of taxes and those are not calculated and reported to the IRS as a percent of revenues.

You're not allowed to redefine the example I posted just to try to warp it into something meaninglses as would be your percent of revenues example, so you may as well stop trying. Go check with the IRS if a business pays taxes as a percent of their revenues - lots of luck!!

It's obvious you don't understand the example as you try to present it as some sort of addition of numbers to arrive at a selling price. That's not the way it works at all. Think of it this way the input on L1 ($1.00) has a target profit margin of $0.33. To reach that level at the marginal rate of the business (34.4%) will involve a tax payment of an additional $0.11 and would cause a sell price of $1.44. The tax amount, though, would be the projected $0.33 times 0.344 = $0.11. That is the amount embedded into the $1.44 price. We're unconcerned about the tax as a percent of revenue ... that doesn't enter in at all. You seem to take this as some sort of accounting compilation of calculating a sell price. That's not what it shows - and that is obvious to most people from the example.

Sorry, but you don't get to redefine the example to be something it's not. It shows the cascading effect quite nicely - and the tax paid is not calculated from the selling price listed (nor is the profit) as you believe. The "amount subject to tax" is exactly as I explained it rather than your misunderstanding and the "tax rate" also is as I explained it rather than as your misunderstanding and attempts to redefine it. The tax rate times the amount subject to tax is the $0.11 as shown.

Perhaps you don't understand the example but I'm satisfied with it as showing what I said it did and understandably so. You don't get to redefine it to suit your purposes just as you don't pay income taxes based on a percent of revenue. That's a meaningless concept in trying to show embedded taxes (or even in paying taxes).


475 posted on 08/24/2005 5:28:15 PM PDT by pigdog
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