10 thoughts on “The Problem…”

1. I have an MBA in finance. I’m not going to lecture anyone, but perhaps I can forward some speadsheets to show how business proposals are assembled.

   Return on capital projections are post-tax. You build variables into your spreadsheets for things like different interest rates, various debt to equity combos, and tax rates (and many other things) to see if you will go forward with a project, kill something, and what pricing should be.

   If your cost of capital is 8% and your return is 10% (and you have no better return on another project that is ready to go), you move forward. If the tax rate causes the return to go to 5%, below the cost of capital, you kill the project and put the money in the bank. You hire no one. You pay no new local property tax. You don’t buy electricty. You don’t donate to the local food shelf as you have no operations in the city now.

2. To finish my thought….so how does this affect pricing? If everyone’s costs are higher due to higher taxes, then you can raise prices high enough to meet your cost of capital, and not loose market share. Bascially the gov’t forces higher prices to pay for things like billion dollar payments to Egypt, food stamp fraud, Solyndra, etc.

3. Silly Chuck never heard of price controls.

4. Chuck-
   Though you may not lose market share, the market itself shrinks. Suppose a Big Mac costs $3.99 & McDonald’s sells a million each day at that price. The market for Big Macs at $4.49 would have to be smaller than one million, just as the market for Big Macs at $3.49 would have to be more than a million.

5. Per Chuck’s comment, it boggles the mind to see all the liberals apparently unaware that taxes are indeed included on an accounting spreadsheet. It boggles the mind even more that Salon can’t figure out that someone unaware of this basic principle of business is probably not qualified to be their economics columnist.

   It shouldn’t take an MBA or CPA to figure this one out.

6. Smaller market….good point. Higher prices cause less economic activity, which starts a downward spiral.

   Cost controls? That would lead to shortages. If I can’t raise prices high enough to get my 10% return, then I do not sell the product or offer the service. Demand is still there at the artifically low price, so therefore we have shortages. Not that anyone who reads this blog needs to be told that.

7. I’m wracking my brain trying to remember the logic behind determining market size at a given price . . . the market for product x at $1 includes the market for the product x at $10, plus the market for product x at $9, etc, etc. Can’t quite remember what the formula looks like, must be an integrated sum.

8. Saying “higher tax rates don’t matter for pricing as it is paid on profits made, not revenue taken in” is as ignorant as saying “we will revisit the warehouse tax next year as it doesn’t kick in until then anyway, so no one is affected by it now”.

9. bubbasan; I wouldn’t waste too much mental energy trying to figure out the economic illiteracy of liberats. After all, when they continue to go back to the Keynesian well so many times under the delusion that “this time it will work,” we have to come to the conclusion that they are just stuck on stupid!

10. Boss; agreed, but after the ten thousandth time being told “look at a **** accounting spreadsheet and see “taxes” on a few lines”, you’d figure some of them would realize that businessmen can and do look at the cost of doing business. So I’d say it’s worse than stuck on stupid. They’re stuck in a fantasy world.

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