Are High Taxes this simple?

[thomaska]

Lets say you have a company and you make hammers.

For the sake of arguement, I will assume there is always a demand for hammers.

You have 20 employees, and the government gives the Hammer/Industrial Complex (ie "You") a tax break for keeping the country well stocked with hammers.

It costs you $5 to make the hammer, and you wish to maintain a $2 profit margins on each hammer, so you charge $7.

Because of your lucrative Hammer business, you are considered to be in the "upper class".

Here comes a newly elected government, and they yank the tax breaks your company gets, and raise your personal income tax.

That $5 hammer now costs you $6.50 to make. Are you going to just bend over and take it, or are you going to raise the selling price of the hammer to $8.50?

Will you also consider, moving your hammer factory offshore to lessen your labor costs? Will you fire some of your 20 employees?

Entirely rhetorical questions, I realize that...

Just trying to illustrate what would happen should Obama get elected and try to "stick it" to the "Rich Folks"...Sure, maybe they will be the only ones getting the tax increases, but the rest of us here in America will pay for it right along with them...

Or am I missing something?

 

[Risus]

Depends on the ethics of the company, but I would be willing to bet the owner would move offshore. The goal is profits.

 

[Ron in Regina]

If by moving offshore, and entering into a market where labor is much less expensive, and
after factoring in the cost of shipping these hammers back to your existing market in the
country you moved from, you discover that your cost per hammer is now $2.50....then
you'd better hire plant managers that speak Spanish or Chinese, and continue to sell those
same hammers for $7.00 as you reside in a tropical tax haven free from the politics of your
original country. The increase in profit forced upon you to stay in business means that your
family can travel to (or relocate to) wherever you now reside, taking their wealth with them
also. Those residents left in the original country just pay more with less jobs to soak up the
spread between the increase in tax's and your departure, with your company.

You stay in the original country if it makes sense for you and your hammer company to do so.
You leave that country (with your hammer company) if changes make it make sense for you
to do so...

 

[TenPenny]

Don't forget that personal taxes and corporate taxes are two different things. If you own the hammer company completely, you'll pay yourself a middling salary, and take the rest out in dividends, so that the tax rate is lower.

PS - what happens if John McCain gets elected and decides to 'stick it to the rich people'?

 

[thomaska]

Don't forget that personal taxes and corporate taxes are two different things. If you own the hammer company completely, you'll pay yourself a middling salary, and take the rest out in dividends, so that the tax rate is lower.

PS - what happens if John McCain gets elected and decides to 'stick it to the rich people'?

Same thing I guess, but at least he won't crawl under the conference table and fellate Ahmedinejad...

 

[EagleSmack]

Same thing I guess, but at least he won't crawl under the conference table and fellate Ahmedinejad...

Oooooh! KA CHING!

 

[DurkaDurka]

Same thing I guess, but at least he won't crawl under the conference table and fellate Ahmedinejad...

No, he'll attempt to fellate Palin, only to discovers that she's a tranny

 

[Unforgiven]

Well the thing is, there will always be a need for hammers. So I say if some company wants to move off shore and take those jobs with it, that's entirely their choice. But I would say that it's within the best interest of the country to make sure that there are no foreign hammers selling in the country where a company that makes hammers locally can sell them.
If that's what Obamma wants to do, then I think it's a great idea.

Consumers hold that very power themselves. So choose to buy "American made" or suck it up when you have to tighten your belt a little because your job moved off shore.

I buy Canadian if I possibly can even if it's more expensive but affordable. So I figure I've got a right to preach.

You can sell your soul but you can't get into heaven without one. Know what I'm saying?

 

[Kreskin]

It's amazing how patriotic the rich are when it comes to bombing other countries or drilling for more oil but not when it comes to helping pay down the country's debt. They'll do whatever they can to screw another American out of a job or dollar to ensure they have enough on hand for the additional week of caviar on the yacht. And while they do it they'll wave the American flag as a symbol of their patriotism. They couldn't give a hoot what financial state their country or neighbor is in so long as they can hoard as much grub as possible. The owner's of Walmart epitomize the American dream; screw everyone but themselves.

 

[Ron in Regina]

We seem to have left the hypathetical Hammer company far behind. I could be wrong (as I am
as often as I'm not it seems) but isn't thomaska asking what YOU would do in that situation??
If he's not, then I am.

Lets say YOU have a company and YOU make hammers.

For the sake of arguement, I will assume there is always a demand for hammers.

YOU have 20 employees, and the government gives the Hammer/Industrial Complex (ie "YOU") a tax break for keeping the country well stocked with hammers.

It costs YOU $5 to make the hammer, and YOU wish to maintain a $2 profit margins on each hammer, so YOU charge $7.

Because of YOUR lucrative Hammer business, YOU are considered to be in the "upper class".

Here comes a newly elected government, and they yank the tax breaks YOUR company gets, and raise YOUR personal income tax.

That $5 hammer now costs YOU $6.50 to make. Are YOU going to just bend over and take it, or are YOU going to raise the selling price of the hammer to $8.50?

Will YOU also consider, moving YOUR hammer factory offshore to lessen YOUR labor costs? Will YOU fire some of YOUR 20 employees?

Entirely rhetorical questions, I realize that...bit of a different perspective on the question though...

 

[L Gilbert]

Sell the hammer company to the Yanks and retire. lol (a la Hudson Bay Co.)

 

[TenPenny]

Your example makes no sense. If they raise the personal income tax, how would that increase the costs of the hammer?

Every single business is based on ROIC - return on invested capital. The owners (or board of directors, who are the representatives of the owners) determine what ROIC is - typically, say 15%. Then, management does projections on what sales vs prices are, and aims to have sales at a price where the RIOC target is met. If costs go up, then logically, either sales volume must increase, or gross margins must increase. Usually, you aim for both. If you simply increase your margin, you're leaving the door open for your competition to scoop your lucrative business.

 

[Avro]

Lets say you have a company and you make hammers.

For the sake of arguement, I will assume there is always a demand for hammers.

You have 20 employees, and the government gives the Hammer/Industrial Complex (ie "You") a tax break for keeping the country well stocked with hammers.

It costs you $5 to make the hammer, and you wish to maintain a $2 profit margins on each hammer, so you charge $7.

Because of your lucrative Hammer business, you are considered to be in the "upper class".

Here comes a newly elected government, and they yank the tax breaks your company gets, and raise your personal income tax.

That $5 hammer now costs you $6.50 to make. Are you going to just bend over and take it, or are you going to raise the selling price of the hammer to $8.50?

Will you also consider, moving your hammer factory offshore to lessen your labor costs? Will you fire some of your 20 employees?

Entirely rhetorical questions, I realize that...

Just trying to illustrate what would happen should Obama get elected and try to "stick it" to the "Rich Folks"...Sure, maybe they will be the only ones getting the tax increases, but the rest of us here in America will pay for it right along with them...

Or am I missing something?

You're not taxed on cost melon head, you are taxed on profit, I know, I have a buisness and have made lots of money from it, with Canadian high tax rates.8O

Why?

I don't pay health benefits so I don't have to absorb the rising cost of health care like you do over in the U.S. all possible with socialized medicine which I strongly support for several reasons.

You could look at like this, a tax increase eats in your bottom line but dosen't eliminate it, now wouldn't you as an american patriot keep your buisness in the U.S. employee Americans all the while paying taxes to support your illegal war in Iraq.

You do realize your deficit is out of control right and billions are being blown on this mess in Iraq and I also assume you realize someone has to pay for it.....right?

It also blows my mind that cons in the U.S. who support this conflict don't want to pay for it.

Are ya ready for it Colpy.....HYPOCRISY!:lol:

 

[Tonington]

Maybe the lower taxes on the people who swing the hammers means that the change in income elasticity actually balances out the change in supply elasticity for the poor (situation not income ) hammer producer. Maybe that means I still buy my Stanley or Estwing hammer (definitely not $6.50 ) as I rarely need to replace that.

 

[jogendra]

hi dh;ah;a;kl;ah;xs;a

 

[Mulk]

Lets say you have a company and you make hammers....

...Here comes a newly elected government, and they yank the tax breaks your company gets, and raise your personal income tax....


Entirely rhetorical questions, I realize that...

Just trying to illustrate what would happen should Obama get elected and try to "stick it" to the "Rich Folks"...Sure, maybe they will be the only ones getting the tax increases, but the rest of us here in America will pay for it right along with them...

Or am I missing something?

I would think that any corporation who's tax rate is increased will consider incorporating in a jurisdiction with a lower tax rate. As the leader of that company you have to weigh the costs / benefit of relocating. the capital costs associated with dumping your existing property or leases and building or leasing new facilities, transportation costs etc. You also have to consider the negative publicity of relocating, the sentiments associated with "made in USA" or "made in China" on your product.

Many factors to consider but that's why CEOs and boards of directors are paid the big bucks.

I swore to my spouse that if the liberals were elected in the last Canadian Election and enacted their carbon tax, we would be searching for a new country to relocate to. Thankfully the conservatives won and we get to stay put.

That's my two cents

 

[Machjo]

John and Suzy each own a hammer company. We experience a tax hike, so Suzy decides to move abroad to avoid the tax increase, but John decides to stay because he'd miss his friends and family.

At first, Suzy makes more profits than John, with more Canadians choosing to import Suzy's cheaper hammers. But to do so, they must first buy foreign currency to buy Suzy's hammers. As a result, the value of the Canadian dollar falls because everyone wants to import hammers from Suzy. As a result, Suzy's hammers become ever more expensive until they finally become just as expensive as John's, at least in Canada.

Once this happens, in spite of the higher tax in Canada, we eventually reach parity as a result of a fall in the value of the Canadian dollar (i.e. imports become too expensive for Canadians, while Canadian exports eventually reach parity). John is left still paying a high tax, albeit with better government services, education, health care, etc., while Suzy is left with more money in her pocket abroad, but with few services to count on.

Now this is on an international level.

Now let's look at it at an interprovincial level.

John and Suzy own a hammer company. The provincial government raises taxes, so Suzy bails the province. In the other province, Suzy pays less tax and so can undersell John and thus exports hammers to John's province. But remember, there are many Suzys and Johns out there. With all the Suzy's moving to the cheaper province, the cost of houses, food, etc. all increase as a result of the increased competition for resources in Suzy's new province. This increase in costs means employees want higher salaries. So eventually, it all balances out with hammer prices rising in Suzy's new province, while prices drop in John's until they reach parity as far as hammer costs are concerned. But again, Suzy gets to keep most of her income but gets minimal gervernment services, while John pays more tax but gets better services.

So no matter how we cut it, it all balances out in the end.

Now of course there's another issue, and that's on the government side.

When governments banned cigarette advertizing in Canada, the cigarette companies were probably happy. Why? Because as long as one cigarette company spends alot on advertising, the others have no choice but to follow otherwise, that company will win out. When the government bans cigarette advertising, it puts all cigarette companies on an equal footing and not having to race each other to higher advertising spending all the time. This helped to bring cigarette costs down, though of course cigarette taxes counterbalanced that.

So as we can see there, government laws can sometimes help to make the market more efficient.

So to go back to John's and Suzy's hammer companies, let's say the government banned advertising except on line. Suddenly both John and Suzy could save money on advertizing while not having to worry about the other having the upper hand as a result.

Another issue is with government spending. If government spends more on education, for instance, this will help the hammer industry have access to more qualified workers, thus allowing the industry to higher qualified workers at lower cost. It's an indirect investment.

But if the government just spend on the military, John and Suzy are still left paying high taxes for the military, yet get nothing in return (i.e. with all the money going to the military, the government has no money for job training, so the people are left unskilled, and so John and Suzy must still pull money out of their own pockets to train unskilled workers, and this costs money. Or for the few who train themselves, they'll be harder to come by and so will want higher salaries).

So it would seem that more important than whether taxes are high or low is how the macro-economy is managed overall, including laws and regulations, as well as how the government's money is invested.

 

[Machjo]

Oh, and then there's tarrifs. Those are useless in my opinion.

If Suzy decides to bail to a lower-tax country, and the Canadian government raises tarrifs to counter it, then Suzy's products become more expensive to Canadians, and so some Candians in Vancouver might buy Mike's hammers from Montral, even though Suzy's in Bellingham. In this case, the Canadian government would just be making the economic system more inefficient. Yes, it might keep the value of the dollar up, but would cause inflation too.

In this case, it would still be better to not have tarrifs and just let the Canadian dollar fall in value until it reaches parity. That way, Canadians in Vancouver could buy hammers from Bellingham while those in Montreal could sell them to New York, each taking advantage of savings in fuel costs. Tarrifs don't allow for that, and so are environmentally unfriendly too.

Another point is how the taxes are placed. A tax can discourage unwanted things. For example, instead of placing an excessive tax on income, why not increase tazes on cigarettes, alcohol, natural resources, and make it user pay. That way, it will encourage companies to work more efficiently. And those who do would be rewarded by lower taxes owing to less fuel dependence, while the harmful companies would go under. Income tax doesn't do thatvery efficiently.

 

[Machjo]

I think one solution would be to switch to user-pay type taxes. This way if John doesn't want to pay taxes, he just has to care more for his community.

 

[Zzarchov]

Uh huh, lets ask Thomaskas question in a logical way as an economist would.


The company is selling hammers, it costs 5 to make a hammer, and you sell it for 7. Currently .40c of that goes to tax (arbitrary number, I don't know the American tax rate). You have a demand of 20,000 hammers a day, out of a total us demand of 100,000 hammers. 20% market share, not bad.

To avoid responsibility for anything you do, you make your hammer factory a corproation, allowing you to reap the profits without putting your personal property at risk like everyone else.

So you make a salary about 150-300 times what your average worker makes, and on top of that, being a 55% share holder make profit from dividends on top of that. So in total your making 600,000 in salary, with 40% tax lets say.

This makes you about a thousand a day take home in salary (little less) and then 17,600 more a day in dividends take home.

Wow, your considered "upper class' just because you make daily what everyone else in the country makes in 6 months to a year (or more)

Now, then in Comes Obama.

He raises your tax rate by 5%, oh no! thats 30,000 a year lost in Salary!

Now your only making 900 dollars a day in Salary! How will you make up the loss?

But wait, now 95% of the country makes more money (45% paying no taxes at all).

This changes the demand for hammers in the country from 100,000 to 120,000.

Your share of the pie (without doing anything) goes up to 24,000 hammers a day.

but the corporate tax goes up 5c a hammer too, hrm, now you only make 1.55 a hammer.

But follow the math through, now your making 20,460 a day in dividends.

So you went from making 18,600 a day with lower taxes for you and higher for everyone else.

Then a tax break you footed the difference for raised your income to 21,360.



And the power of having your taxes raised turned out to be a good investment that made you more money.



Whether or not you relocate has very little to do with taxes, since you are only taxed on profit. Its far more important on logistics as the money involved in logistics is far greater than in taxation.