How To Clear Snow in Kentucky

[Kellemora]

I get a kick out of some folks who post that if you give the 320 million people a million dollars each, it would only cost 320 million dollars, instead of the true cost of 320 trillion dollars, hi hi.
Heck to give 320 million people only 1,000 dollars costs 320 billion dollars.

We used to have a store back home who gave a 1000 dollar shopping spree to someone every month.
Because this was considered an advertising expense, they took the entire 1000 bucks as a deduction.
I guess they got by with it for many years, at least until they were also claiming inventory shortages as losses, when some of those shortages were the items given for the shopping spree, hi hi.
They did not give out cash, they only gave out a individual credit for purchases in their store. So there was no loss to claim as advertising expense, and that got disallowed on their taxes.
Then the loss from sales on free credits of 1000 bucks could not be claimed because they could only claim their cost for the items sold. So, basically, for every 1000 bucks they claimed as advertising expense, and 800 dollars of every inventory shrinkage they claimed associated with shopping spree purchases, caused them to owe a huge chunk of taxes to the government, and an even healthier fine on top of it all.
Needless to say, the stopped the shopping spree handouts, and also raised all of their prices about 4 to 5% to cover their major loss.
About 5 years after this, they decided to close their stores completely.

[yogi]

The free shopping story is pretty interesting because we had a store in our neighborhood which did the same thing, but for a much smaller payout. I believe it was a $100 shopping spree. I don't recall reading about the store bucking heads with the IRS. From your description of what happened I can tell there would be a conflict from the IRS's point of view, and I'm not an accountant. I do know that grocery stores operate on a very thin margin so that a $1000 loss of salable inventory could significantly affect the bottom line. But, there is no reason to get greedy about it and claim the deduction twice.

The numbers you cite for handing out cash to the peons are staggering. I can't imagine how much the 3 trillion dollar 2017 Tax Cuts and Jobs Act cost the US Treasury. Probably more money than exists.

[Kellemora]

Actually, it didn't cost the government any loss.
The government still gets the same amount of money, it's just the companies don't make a profit on the taxes they collect anymore.
It's the people who win, when corporations get tax cuts, so they have more money to spend. As long as money is changing hands, the government benefits from that. But when they hoard money, that's when the government gets shorted.

[yogi]

Any benefit corporations experienced from the lower taxes presumably would be passed down to the consumer. It's the famous rationale that Ronald Reagan used to explain "trickle down" economics when he tried something similar. It didn't work for Reagan and no way did 3 trillion dollars trickle down into consumers' pockets to stimulate the current economy as it was advertised to do. The windfall profits were mostly, but not entirely, used by the corporations themselves to buy back stock, expand business, and pay out bonuses to executives. The tax on corporate profits was not eliminated, but instead reduced. They pay out something like 21% now instead of the 35% prior to the cut. I understand your reasoning for corporations to pass on the cost of collecting the taxes, but it simply doesn't make sense that it would cost any more or less to collect 21% verses 35%. Thus the major beneficiaries of the legislation are the corporations themselves.

The cost of all this is the loss of tax revenue, which will be something like 3 trillion dollars by 2025. This figure is added directly to the national debt in that expenditures were not reduced but income was. If there is a multiplying effect I don't see it. However, I do see the budget going negative to the benefit of large corporations.

[Kellemora]

I think it is obvious no company is going to reduce the price of their products once they have folks accustomed to paying what they are paying for them now.
You won't see prices come down, but you won't see them go up as much over time as they do with higher taxes forcing them up higher yet.
The sad thing is, the government still only gets their dollar, but it costs the end consumer 5 to 7 dollars for that to happen, the way things are right now.
What I do know for a fact, is that the 17 cents added to the selling price of my product, becomes 58 cents in hidden taxes to the end consumer who buys my product, but the government still only gets their 17 cents.
It would make more sense for the government to charge the end consumer the 17 cents so the customer saves 41 cents.
I make roughly 1 cent profit on the sale of two bottles of my product, just from the tax markup.
Now, if the government stopped making me pay taxes, I wouldn't drop the price of my product, mainly because my profits have been eaten up by inflation already. But the end consumer would see the price of my product has not gone up while other product did a little ways down the road.
My costs keep going up and up and up, but the price of my product is at the highest the market will currently bear for that product. So yes, I will benefit from a tax reduction. However, if my taxes get any higher, I would probably have to discontinue my product.

[yogi]

Apparently you haven't been listening to the sales pitch for the tax cuts and how they were supposed to pay for themselves. The lawmakers who forced that last cut through congress claimed that business would return those windfall profits to the consumers and thus not cost the government anything. That logic is nothing short of delusional even if "trickle down" was a proven concept, which it is not. You as a businessman point out correctly that no windfall profit is ever passed on to the consumer. Some companies did in fact give their employees bonuses and token increases in wages. Those employee benefits were temporary where they are given.

Not being an accountant it's hard for me to see the justification of adding cost above and beyond what is necessary to maintain a fair profit margin. I don't agree at all with the characterization that the inflated cost of taxes being passed on to each link of the supply chain is a hidden tax. As you aptly point out, should the tax miraculously disappear one day, those so called hidden taxes will remain. They will remain because they are in fact the cost of doing business and not the cost of sending Uncle Sam his fair share. I agree that at the end of the supply chain the inflated costs have been multiplied at each step of the way and the buyer is the one paying the price. If a businessman is profiting from collecting and forwarding taxes, then he is being very naughty. A business is justified for charging the handling costs, but adding a profit on top of that isn't a hidden tax. It's price gouging.

[Kellemora]

Not really price gouging, as no individual company marks up more than the standard rate for the industry. But it does become cumulative as costs pass through to each company in succession to the retailer who doubles his cost to get the retail price.

All overhead is included in the cost of goods sold. Every expense must be calculated into your cost of goods sold.
In real life, the cost of goods sold is the Break Even price where zero profit is made. So every company adds a markup most common for their industry. But you also have to remember, this markup also becomes taxable as profits at income tax time.
So the cost of end of year taxes on profits has to be considered also, lest you end up in the hole and lose money.

Not all products go through as many levels of manufacturing as some other products, even so, it is rarely less than 5 levels, and most often 7 levels to reach the retailer.
This is why I say, for every one dollar in tax paid out by the first company in the chain of manufacturing and distribution, the end consumer pays 5 to 7 dollars in hidden taxes, and in many cases, they are paying sales tax on those hidden taxes.
The government still only gets their one dollar, but it cost the consumer 5 to 7 dollars for that to happen.
The end consumer bears the entire cost of taxes on all businesses. There's no other way to look at it.

[yogi]

We are in agreement on every point you mention except one. I don't favor calling normal markup a hidden tax. Then again, it's just semantics.

That standard markup, by the way, is an estimate that has been developed over time. Some of the costs of doing business are not easy to calculate and must be estimated. The anticipation of taxes on profits indeed must be included in the retail price, but the actual dollar amount of the profit and subsequent taxes is not known at the time the markup is added into the pricing formula. Also, while the taxes are cumulative along the entire supply chain, each link is separate. It's not like compound interest. It can be thought of as being like depositing your money into a savings account, collecting interest, and then withdrawing it to deposit at another bank to collect that interest. After you do that 5 or 7 times you have compounded your earnings because the interest is added to the total deposit each time. That's not the case in supply chains. The costs are incremental, but not compounded. Be that all as it may, you are absolutely correct to point out that the consumer is the end point that pays for it all.

I think the economic system we use is called free enterprise. That means the prices, profits, and loses associated with doing business are free to float as the market will bear. That doesn't happen in socialism or communism and thus the prices of goods and services can be better controlled. There may be some disadvantages in the way our government applies taxes, but when I think of the alternatives we still have the best system ever invented.