On this blog I thought I would discuss the frightening prospect of pyramiding taxes.
I acknowledge that this tax pyramids in the economic model. Since the abolition of slavery, I concede that all taxes embed in the economic mode. It is like the broken window analogy. Yes, a broken window for the shopkeeper, does cause more commerce for the glazer, and their downstream suppliers. However, it may take away from the monies the shopkeeper may have wanted to spend on a new display case or hire a new employee. So, it was just a realignment of resources. I see taxes in the same vein. Taxes in a civilized country may be necessary. However, they have to be paid for. If you don’t pay for them today, you pay for them tomorrow with inflated money or a promissory note on future productivity.
The standard model for economist is the theory that taxes are necessary but bad for certain sectors in an economy. They feel the best way to handle this problem is to try to minimize the burden on necessary or positive spending, and focusing on taxing excess or surplus income. I may agree to some points on this philosophy of taxation if the government would work the same as a business. However, it does not. Government spends money, regardless of the revenue provided to it. And shaping tax laws add compliance costs to the economic model. The only governor on governmental spending is political pressure. Taxation is just a diversionary tactic to move the focus off of spending, and interject emotion. They even point to models that support this. I have no argument with Keynesian Economics or supply side economics. From a common sense perspective, it makes sense. You build up reserves in the boom time, and spend to stimulate in the down times. This would work if you had more or even equal surplus years than deficit years. However, if you look at a graph of spending versus revenue, surplus years are the anomaly, deficits are the norm. These anomalies of surplus arose mainly from revenues to the treasury outpacing the spending patterns, so largely due to the economy outpacing spending, not any planned structure. I believe that governmental spending is the area America needs to focus on. That is why I have explored this tax.
The chart from above is a simulation of this tax for 5.5%, 4%, and 3.8% rates. It is a simple simulation to show that the effects of this tax are not as detrimental as the opponents to this tax claim. I concede it does embed and that the tax adds to the overall cost of an item. Just like any expense chain, and removal of this tax does reduce the overall cost of an item. However in most cases you will be placing a higher end user tax onto the final price of the item. This percentage is exacerbated by the need to minimize the effects of the larger tax on the poor. In essence try to tax excess spending only. There are concerns that I will address in future blogs, on the effects of the rates on individuals, compared to organizations. However, I do acknowledge that the higher the tax the more detrimental to organizations. It is a balance that must be maintain for the overall health of the economy.
I have included a link to the google doc spreadsheet I created. https://docs.google.com/spreadsheets/d/1FLTGEOi7PYSwFcWv15kbtzhcCQ1gm2MtJEKRGOuVNaQ/edit?usp=sharing
To explain it. It is a simple extrapolation to add all embedded taxes in this model. These spreadsheets were compiled on an expense factor of 1 with the embedded taxes cumulating. And a 10% markup to determine final sale price at each change of ownership for the item. I have chose these factors to maximize the final percentage. Any changes in values affect the final percentage. Usually the higher input values of costs will reduce the final percentage. It may not be a real world model, however, most real world models should outperform the simulations. I used the 23% of the Fair Tax as the baseline to measure it against.
This is why I like The CUT Tax better than any model available. It makes the model more efficient, and does not create protected classes. I also agree with the concept that businesses do not pay taxes, just collect them for the government. So, it is an pass through expense. The end user ultimately pays the tax.
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