Obama to announce increase in taxes for businesses and wealthy
- Thread starter MrDODGE
- Start date
Okay, let me see if I get this straight.
I will use an example where a car is $20,000.
Built into that car are the materials that make up that car (tax free), labor (taxed), and the overhead (taxed). By all reportingâs here, labor and overhead (Federal Payroll tax) is taxed at a rate equivalent to $23% which covers business tax, medicare, and social security. Health care costs are not factored into this 23% as that is not a tax.
Now for the purposes of simplicity, letâs say materials are 50% of the cost of the vehicle. âFreight-Inâ materials are untaxed.
By eliminating the corporate taxes we save 23% of 10,000 or $2300. The car now costs the manufacturer $17,700. Assuming the business does nothing else on cost, the new cost of the car is 1.23 X $17,700 = $21,771. The cost of the car just went up 3.5% in this example. Fact is, few products have labor rates at 50% cost so the 3.5% is a lowball number. My understanding is that labor in a car is approximately $2000 so the reduction in labor related taxes is $460.00.
But to the US government they receive $4000, where before they received $2300 plus the contributions made by the individual workers in taxes, social security, and medicare. From what we know, corporate taxes are less than individual taxes so by this example the federal government was receiving previously over $4600 and now they are receiving $4000.
To foreign consumers they just spent 3.5% or more on their purchase and the US government received 15% less than what they received before. It thus requires more product sold at a higher price by the same level of workforce for the government to breakeven since the government is losing payroll tax on the work force.
Am I missing something?
I will use an example where a car is $20,000.
Built into that car are the materials that make up that car (tax free), labor (taxed), and the overhead (taxed). By all reportingâs here, labor and overhead (Federal Payroll tax) is taxed at a rate equivalent to $23% which covers business tax, medicare, and social security. Health care costs are not factored into this 23% as that is not a tax.
Now for the purposes of simplicity, letâs say materials are 50% of the cost of the vehicle. âFreight-Inâ materials are untaxed.
By eliminating the corporate taxes we save 23% of 10,000 or $2300. The car now costs the manufacturer $17,700. Assuming the business does nothing else on cost, the new cost of the car is 1.23 X $17,700 = $21,771. The cost of the car just went up 3.5% in this example. Fact is, few products have labor rates at 50% cost so the 3.5% is a lowball number. My understanding is that labor in a car is approximately $2000 so the reduction in labor related taxes is $460.00.
But to the US government they receive $4000, where before they received $2300 plus the contributions made by the individual workers in taxes, social security, and medicare. From what we know, corporate taxes are less than individual taxes so by this example the federal government was receiving previously over $4600 and now they are receiving $4000.
To foreign consumers they just spent 3.5% or more on their purchase and the US government received 15% less than what they received before. It thus requires more product sold at a higher price by the same level of workforce for the government to breakeven since the government is losing payroll tax on the work force.
Am I missing something?
Double taxation happens all the time. I get taxed on my income. If I spend the rest, I get sales tax or value-added tax to pay. If I invest the rest, I get capital gains tax on that. That's just the way tax works - any time you make a gain, you get taxed, that's the general principle.
If I inherit some money, clearly I am making a financial gain. Unlike income, or capital gains, I didn't actually do anything constructive to deserve that gain. I just got lucky enough to have parents or relatives rich enough to have money and nepotistic enough to pass it on to me rather than some pauper in the third world, or deserving charity. If we are going to tax anything, I think totally luck-based unearned gains like inheritance is, at the very least, just as deserving of taxation as income or capital gains - and arguably more deserving of tax. I cannot really see any reason why profiting from the death of a relative, rather than by your own endeavours and productive work, is more deserving of any kind of tax exempt status.
Now ideally most stuff would be taxed so little that it would not matter very much. But if tax is going to be high, let it be levied on unearned nepotism at least as much as on deserving gains from hard work. I don't think that's idiotic.
As for trying to bring in the emotive side of things, surely taxing someone after they die is far more equitable than taxing them while they are alive. The latter makes them a partial slave for decades, the former doesn't affect them until they are gone and can't feel any pain from it.
Well, as I see it, the true cost of the car was $15,400 based on the current system of about 23% imbedded tax..I don't see why that figure would change. You're using $10,000 as the cost of materials,which is fine but you have to account for the other $5400 cost somewhere. If that cost is there before, it will be there afterward. It might be profit for the car maker. Funny. Anyway, if you add the tax back in it would still be $20,000.
Maybe my math is wrong but if the car costs $20,000 with the inbedded tax it would cost $20,000 when you add it back in. Maybe I'm missing something. Help me out here.
Maybe my math is wrong but if the car costs $20,000 with the inbedded tax it would cost $20,000 when you add it back in. Maybe I'm missing something. Help me out here.
I'll be back later.
testaclese. Your math does not add up for starters. The $15,400 cost can never reach $20,000 at a 23% tax rate. You are correct however in that I never factored in profit margin but lets assume profit margin would remain the same regardless.
If you want to say profit margin for the manufacturer was $2,000 (11%) you then apply a direct cost of $18,000 into actually making the car itself - 50% material and 50% labor. Material is not burdened with taxes under the present system so the 23% imbedded tax is applied to the labor portion of the manufacturing cost only ($9000). That means that the actual labor cost to the company was $7600 and the payroll tax on that labor was $1400. This is $1400 the government would receive in payroll taxes. The government will also receive say $1400 in taxes from the employee by way of income taxes and social security.
So under the present system the government receives $2800 for this car that sells for $20,000. Under the new system the car is sold by the manufacturer for $9000 materials + $7600 labor + $2000 profit = $18,600. The buyer of the car must pay $18,600+23% tax = $22,871. The car is $2,871 more expensive.
Since we have recently heard that labor in the manufacture of a car is roughly $2000, the amount paid in the new system is even greater. If we used $2000 for labor materials goes to $16,000 in this example, labor is $1626, and profits is still $2000. Total cost of the vehicle before taxes is now $19,600 and you add in your 23% tax and you will now pay $24,108 for that $20,000 vehicle.
I agree, definitely the lesser of several evils as far as taxes go. Makes far more sense to tax unproductive assets than productive work. The transfer of wealth also creates economic activity. Philosophically it sucks but practically it is less objectionable than taxing the product of ongoing work be it by an individual or a corporation.
There are many ways of reducing the impact of such a tax anyway so unless lot of loopholes are closed this will not end great inheritances.
I wonder if this isn't in part why Rogers moved out of the US, he probably sees this as a likely eventuality
Enough said
