Fast tax is coming soon

[Cleon]

In this example, the amount I generate in Big Pounder Combo sales drops to $473 per day, a loss of $31. But even worse, I don't get to keep 20¢ of what is now the final price of the Combo. $22 is how much I will have to give to the state in taxes, increasing my loss to $53 a day. That's over 11% of my revenues, GONE! For a tax that is less than 5% of the sale price. And that's revenues! The figure for my lost profits will be much larger!

You can say the restaurants aren't paying the tax since they're passing it on to the consumers, but as this example shows, the restaurants are paying, dearly.

They're not "passing on" anything. The consumers pay the tax. Directly. It's a sales tax. You pay 'em all the time. (Edited to add: Aren't you a proponent of the "Fair Tax?" That makes this one look like a "give a penny" jar.)

Again, your example (more like mathematical model--not that it's a bad thing, necessarily, but it's not necessarily reality) presupposes that the restaurant will lose sales due to the tax. I remain to be convinced of this.

Can you show an example where a 2% sales tax resulted in significant loss of jobs?

 

[Meadmaker]

The 2% fast food tax, if implemented, will not result in a net job loss. There is a simple reason for this. People still have to eat.

As a result of this tax, some people who would have chowed down at McD's will note that they have only $4.56 in their wallet and their medium sized value meal costs them $4.62, and as a result they will go to the grocery store and buy a jar of peanut butter, thus employing someone at the local supermarket. And since the peanut butter is cheaper, they will still have 50 cents left over, which they will end up putting into the video game in the lobby, thus employing software developers.

Meanwhile, someone else will be deciding between Burger King and the Thai restaurant next door to it. He likes Thai food better, but it costs $1.50 more. But wait. Now comes the tax, and the difference is only $1.38. He goes for the Thai food a bit more often.

In other words, when government taxes one segment of the economy, but leaves another alone, they just shift jobs. They don't eliminate them. There is a brief transition period, during which the McDonald's lays off a worker and before the Thai restaurant adds another waiter, and during that transition period a job is lost, but it all balances out in the end.

However, don't mistake this for a defense of taxes like this one. By artificially moving around jobs like that, what happens is the government is picking and choosing how people spend their money. I'm not too keen on that.

Cigarette and liquor taxes at least have the marginal defense that it is easy to define just what constitutes tobacco and alcohol, so you don't have Burger King putting bags on trays so they can claim they aren't fast food.

 

[shanek]

They're not "passing on" anything. The consumers pay the tax. Directly.

No, they don't. Sales taxes are paid by the consumers to the place of business at the time of sale, and the businesses pass along that money. Paying taxes directly is like Income Tax, where you fill out your forms and send them in with the money every year.

Aren't you a proponent of the "Fair Tax?"

No. Where'd you get that idea?

Again, your example (more like mathematical model--not that it's a bad thing, necessarily, but it's not necessarily reality)

It's basic economics. It's not even anything that's in dispute. Basic supply and demand. That's exactly how it works.

Can you show an example where a 2% sales tax resulted in significant loss of jobs?

Here's a study developed when Oregon was considering a 5% sales tax: http://www.cascadepolicy.org/pdf/fiscal/I_7.htm

 

[shanek]

The 2% fast food tax, if implemented, will not result in a net job loss. There is a simple reason for this. People still have to eat.

People can cook for themselves, and eliminate the middleman. Instead of the restaruant buying the ingredients, and then paying people to cook them, people can just buy the ingredients for themselves, thus reducing the food service jobs.

As a result of this tax, some people who would have chowed down at McD's will note that they have only $4.56 in their wallet and their medium sized value meal costs them $4.62, and as a result they will go to the grocery store and buy a jar of peanut butter, thus employing someone at the local supermarket.

What, 2 - 1 = 3? Is this that "fuzzy math" I keep hearing about?

In other words, when government taxes one segment of the economy, but leaves another alone, they just shift jobs. They don't eliminate them.

You just cannot have thought about this for any length of time. There is a reason why they weren't going for the Thai food earlier. Once you work out why that is, you'll see what is wrong with your reasoning.

 

[Cleon]

No. Where'd you get that idea?

My bad, I could've sworn you supported it.

Here's a study developed when Oregon was considering a 5% sales tax: http://www.cascadepolicy.org/pdf/fiscal/I_7.htm

An across-the-board sales tax is one thing. I've made purchases where I've paid $25 or more in sales tax, hell, cars are subject to sales tax in some states. This is limited to fast food; the vast majority of the time people will be paying less than 25 cents in tax.

Edited to add: I realize this sounds like I'm moving the goal posts, but my contention is that the amount of tax is so small that any effect will be negligible.

 

[shanek]

I realize this sounds like I'm moving the goal posts, but my contention is that the amount of tax is so small that any effect will be negligible.

As my economics professor said, nothing is negligible. Take that small-enough-to-be-negligible effect and multiply it by the entire economy, and multiply it by all of the effects it will have on the economy in the long run, and you'll see just how devastating "negligible" can be.

Or, as Henry Hazlitt said in Economics in One Lesson, "The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist inquires also what the effect of the policy will be on all groups."

 

[Beerina]

> BTW, I think the tax failed here but apparently it passed in New Jersey.

I'm so sick and tired of politicians "with the courage to raise taxes". That's some of the most disgusting rhetoric I've ever heard.

 

[Beerina]

Re: Re: Fast tax is coming soon

Good job, Detroit.

Idiots.

Please watch the sarcasm about my beloved anchor city that I never visit except for Mexicantown and Greektown. It may not be much, but it's my high-crime, high-taxation, socialist, kleptocracy of a hellhole.

 

[Beerina]

Re: Re: Re: Re: Fast tax is coming soon

If politicians really wanted to do something about obesity, why don't they bypass the middleman - McDonald's - and just put an extra tax on fat people?

Because in the state of Michigan, and Detroit, fat people outnumber non-fat people. Thus it would fail. A tax would be applied to the thin instead.

Live by the socialist cheesburger, die by the socialist cheesburger.

 

[Meadmaker]

You just cannot have thought about this for any length of time.

I think I have. But alas, I doubt I will be the beneficiary of any more of your enlightening instruction on this subject.

 

[CBL4]

ShaneK's supply and demand curve is a good way to look at things but it is actually worse than he says. Even if I can raise my revenue, my profits can easily drop tremendously because of fixed costs.

Let's assume I sell 100 Big Pounder Combos a day for $5 each. My cost are $1 for the ingredient for the per burger plus $350 per day for employees, the building, taxes, etc. This leave me a profit of $50 per day.

Assume, there is new two percent tax on burgers which raises my final price to $5.10 causing me to sell 1 less burgers. I receive revenue of $504.90. I have to pay $350 to my employees plus $99 for burgers plus $9.90 for taxes for a total of $458.90 leaving me a profit of $46.

My profits fall 8%! My gross revenue went up, I passed all the cost of the tax to my customer but my profit plummetted. Because of fixed costs, the last 13 burgers provided all of my profit. Losing one lousy burger was a big hit on my bottom line.

CBL

 

[shanek]

ShaneK's supply and demand curve is a good way to look at things but it is actually worse than he says. Even if I can raise my revenue, my profits can easily drop tremendously because of fixed costs.

Yes, I was trying to keep it simple. So I didn't get into anything like fixed costs, or go into the fact that the tax is levied as a percentage and would therefore be higher as the price goes up, etc. I just wanted to demonstrate the basic effect. As you point out, if anything my demonstration was actually being very generous to the other side.

I also didn't get into profit vs. cash flow, which puts a whole different wheel on the wagon.

My profits fall 8%! My gross revenue went up, I passed all the cost of the tax to my customer but my profit plummetted. Because of fixed costs, the last 13 burgers provided all of my profit. Losing one lousy burger was a big hit on my bottom line.

Wonderful description. Thanks for providing that.

 

[CBL4]

Originally posted by shanek
Wonderful description. Thanks for providing that.

Thank you. This is actually an example I know first hand. My wife ran a coffee shop and the last hour or two of the day was when she made profit. The first 6 hours were just to cover her costs. Each additional latte sold was almost pure profit.

The cost of coffee and milk is negligible. It was the equipment, leases, taxes and, especially, employees that were responsible for almost all the cost.

CBL