Yep, that seems to be pretty much the mechanism.
The SQL crowd will not admit it (actually cannot as it destroys their position) so they'll now attack you personally.
And even that is only the beginning.
Try and get your hands on a copy of James L. Payne's great book entitled Costly Returns - The Burdens of The U.S. Tax System
To wit:
pigdog has chosen a taxable profit margin of 33%, since this variable has a first order effect on the outcome, and is a geometric factor, the outcome inflates rather quickly to an extraordinarily large level.
I believe that groanup pointed out later in post #340 that taxable profit is about 3% of revenue (an interchangable term with price) not 33% as offered by pigdog.
I'll leave the fancy chart making to others, but at the more accurate taxable profit margin of 3%, and a tax rate of 34.4%, $1.00 flowed through 6 levels of production that simply extract a profit and have no additional costs becomes $1.27. That represents an accumulated profit of $0.20 on the original $1.00, and an accumulated tax of $0.07.
The total tax burden to the consumer is a much more reasonable 5.4% of the price (not the whopping 23% offered by pigdog ... does that number look familiar?). Of course, eliminating that 5.4% of price by eliminating the profit tax an replacing it with a 23% inclusive sales tax make the price $1.55 (vs $1.27 ... but to point this out would be to ignore many facets of the model which have been simplified away ... and we wouldn't want to do that, now would we?)
As with all these discussions, accurate repsentation of the situation depend on accurate choices of examples and inputs.
Here is a way to look at your example:
Level 1: Hot Dog Packer, manufactures hot dogs and sells to
Level 2: Fred's Hot Dogs, who buys the hot dogs and resells them without adding any value for 33% higher to
Level 3: John's Hot Dogs, buys the hot dogs and resells them without adding any additional value for 33% higher to
Level 4: George's Hot Dogs, buys the hot dogs and resells them without adding any additional value for 33% higher to
Level 5: Johnny's Really Good Dogs, who buys the hot dogs and sells them without adding any additional value to the end consumer for 33% more than he paid.
And remember that at each step of the way none of these companies has any inputs except for the hot dogs they buy-- no buildings, employees, phones, trucking charges, etc. Plus each of them is a C-Corp paying max corporate income taxes.
Try the examples with some real numbers (site_test has done this, he can probably show his example) and the accumulated tax numbers are much much lower. It is of course unreasonable just from a common sense point of view that these numbers could get as large as your example shows.
The pigdog example just shows that when you put garbage into a spreadsheet, garbage can come back out.
You have calculated profit and then the tax and added them together to get selling price, but taxes are taken from profit not added to it. The gross profits are taxed, yielding after-tax profits. The selling price in Level one for your example would be $1.33 not $1.44 because the taxes come out of the profit to make the final level 1 "after-tax" profit $0.22.
Plus the example still has all the other flaws discussed in the previous post.