And, if additional levels are involved instead of the 6 chosen to present the illustrative example, you'll find that the cascading and embedding picks right back up again. So while the "Accumulated tax as % of price" (which in my example is "tax cost as % of sell price") appears to fluctuate in your example, it only does so because of the carefully-chosen marginal points used. But your example has other basic flaws as well. Your derivation of "cost of value added" appears both arbitrary and inconsistent from level to level - it makes no sense. The poorer performing businesses are adding less value proportionately than the more successful ones; perhaps that's why they're clearly going out of business - all 4 of them.
More than that, even though you have basically chosen 4 of the 6 levels as being failing companies, there will be few companies even at what you call a 4.9% "net profit margin". You spreadsheet example has changed the entire example and only illustrates that failing businesses (4 of the 6) pay little or no tax. They also will not be in business long at that rate. A 4.9% "net profit" (your spreadsheet description) really represents a markup (as used in my spreadsheet) of about a little under 9% which will be untenable in the real world.
Another fly in your ointment is that you assumed that even those businesses doing poorly were paying taxes when in fact they would not be since they have little or no profit and you haven't adjusted the rate.
It would have been more intellectually honest of you to use the second example I gave which used a net profit of 10% *which represented a markup of about 18%) and go from there. Artificially adding costs isn't what the example is all about and you apparently ignored the fact that I clearly stated the example was not intended to be any sort of real-world accounting example of businesses but was intended to show how the cascading mechanism of embedded tax costs occurs - which it does.
Your example is so drastically modified in several ways that it does nothing of the sort. Since you are pretending to have some sort of "real world" example (and you don't) you could at least have used more realistic markup/net profit levels instead of picking 4 of the 6 as failing businesses. Lets say that all 6 were reasonable businesses operating at some sort of profit level such as the 2nd example I showed.
As it is your example means nothing at all except as an example of your cleverness in devising a spreadsheet to minimize certain values (and some of those are incorrect as we've seen). If I were grading your effort in class, Nightie, I'd give you an F- and send you back to Business 0.000001.
This exercise you'd like to engage in is truly nonsense and I'm certainly not going to continue the waste of time with you. I've been all over this ground in the past.
Perhaps the funniest thing of all, though, with your misbegotten and misshapen attempt at illustrating some point (which escapes me since the execution is so flawed) it this:
EVEN WITH ALL OF YOUR CAREFULLY-CHOSEN VALUES (OFTEN PULLED FROM GOD-KNOWS-WHERE) AND UNREALISTIC ASSUMPTIONS OF 4 OF THE SIX BUSINESSES BASICALLY FAILING AND THEREBY CONTRIBUTING LITTLE OR NOTHING THE THE CASCADING EMBEDDED TAXES AT THE END OF LEVEL 6 YOU STILLSHOW EMBEDDED TAXES COSTS OF ALMOST 5%. THIS WOULD BE IN ADDITION TO THE 7.65% YOU "EXPERTS" HAVE BEEN HARPING ON THAT STEMMED FROM THE SAVING OF THE "ER" PORTION OF PAYROLL.
So, if you are to be believed you're illustrating close to a 12.5% price drop by eliminating the income tax and that doesn't even count compliance costs which one of your whizzes (AR maybe?) said was 2%. Goodness how prices will drop with the income tax elimination ... and you've just demonstrated it.
My example illustrates the cascading mechanism with far less folderol to get in the way than yours, but thanks for proving that perhaps the 15% price drop area is reasonable. Who'da thunk it??? 'Preciate it Nightie!! Don't know how you'll square that with the other Squirrels, though, since you've just shot them all in the foot.
Your "realistic illustration" is anything but Nightie. You've obviously chosen a set of conditions (including the spreadsheet layout itself) that intentionally overstates costs so that profits will be reduced, thereby reducing taxes paid.LOL! I used the =RANDBETWEEN(-10,30) function in Excel and divided it by 100 to give me a gross profit margin between -10% and 30%. That means the average profit margin on a number of runs would be 10%. I did manually adjust one, the negative one closest to 0, and set it at 0% so there would be one company breaking even (companies do break even in the real world). The average net profit margin for Fortune 100 companies was 6.3% in 2005. In your example, you set the net profit margin for every company at 33%! I think it's obvious my example is more realistic.
And yes, certainly if there are no profits or there is a loss there will be no taxes paid BY THAT BUSINESS. The costs that have cascaded and embedded to that point, however, will still remain in the items involved as they move to other levels.But somehow they weren't able to pass all their costs along in their prices. I guess they should have gone to the Pigdog School of Economics and Truck Driving.
And, if additional levels are involved instead of the 6 chosen to present the illustrative example, you'll find that the cascading and embedding picks right back up again.Additional levels won't matter. For example, if the average profit margin is 10% and the tax rate is 33%, taxes will 3.3% of sales regardless of the number of levels.
So while the "Accumulated tax as % of price" (which in my example is "tax cost as % of sell price") appears to fluctuate in your example, it only does so because of the carefully-chosen marginal points used.Those "carefully chosen marginal points" were randomly generated!
Your derivation of "cost of value added" appears both arbitrary and inconsistent from level to level - it makes no sense.That was a random percentage, too. I multiplied the input by that percentage (10%-110%) to get the "Cost of Value Added." Some levels add a lot of value, some add very little - just like the real world.
The poorer performing businesses are adding less value proportionately than the more successful ones; perhaps that's why they're clearly going out of business - all 4 of them.Huh? The profit margins were completely random except for the one breaking even. The one that broke even added almost as much value as the one that made the most profit! What the hell are you talking about? And only one is losing money (lots of companies in the real world lose money; e.g. GM) - and they may turn a profit the next year. Who knows?
More than that, even though you have basically chosen 4 of the 6 levels as being failing companies,Failing companies!?! Only one is losing money, you idiot! Do you think a company that has a net profit margin of 4.9% is failing? You may want to tell Wal-Mart. Their net profit margin last year was 3.7%.
there will be few companies even at what you call a 4.9% "net profit margin".LOL! You are really flaunting your ignorance now. Dell's net profit margin was 6%. Net profit margins in the 4.9% range are extremely common. Do you really think every company makes ~33% profit margins? Only a few companies, like Microsoft, can do that on a regular basis. Hell, ExxonMobil had more profits than any company ever last year and their net profit margin was only 10.8%!
You spreadsheet example has changed the entire example and only illustrates that failing businesses (4 of the 6) pay little or no tax.Most business pay very little tax when compared to revenues. Pick a company and go look at their annual report. (I'm sure you'll pick an atypical company.)
They also will not be in business long at that rate. A 4.9% "net profit" (your spreadsheet description) really represents a markup (as used in my spreadsheet) of about a little under 9% which will be untenable in the real world.That's gross margin. You "marked up" the cost of inputs. Your businesses had no costs of production or operating expenses whatsoever. I'm not sure who you think is doing the markup at those companies because they don't have any labor costs. The average gross margin for the Fortune 100 companies was ~10%. Most companies would be very pleased with a gross margin of 9%. I don't know why you think a company with that type of profit is "going out of business." Why would they? They are making money.
As it is your example means nothing at all except as an example of your cleverness in devising a spreadsheet to minimize certain values (and some of those are incorrect as we've seen). If I were grading your effort in class, Nightie, I'd give you an F- and send you back to Business 0.000001.LOL!! I think it's very clear who has a better understanding of business in the real world. You may want to spend some time going over some income statements of real companies. You seem to be totally clueless of how things work in the real world.