Economics lesson in one paragraph

[rcavictim]

"A rich tourist is driving through a town where everyone lives on debt. He stops at the motel and lays a $100 bill on the desk, saying he wants to inspect the rooms upstairs in order to pick one to spend the night.
"As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her 'services' on credit. The hooker rushes to the hotel and pays off her room bill with the motel owner.
"The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.
"No one produced anything. No one earned anything. However, the whole town is now out of debt and now looks to the future with a lot more optimism.
"And that, ladies and gentlemen, is how the United States government is conducting business today."

source unknown

[LowGear]

United States Government?  That's the whole market economy. 

Now if the hotel owner would have been one of those cash and carry jerks then the whole town would still be in a depression.  Did anyone thank this tourist for his stimulus program or did they just want to see his birth certificate?

Casey

[Crofter]

Now had the wind blown that bill astray somewhere and the customer was a serious person who demanded accountability, the story might have a different ending. It also supposes he was chump enough to part with his money in the first place with no quid pro quo

It is a reflection on how our dicey system does seem to work though! As long as the music plays no one is short of a chair!  The sad part is that people seriously suggest that such a system is without some extremely perilous pitfalls. Of course they are the ones that are taking a small percentage of each and every minute transaction for the supposed service of keeping account. This old buzzard is not going to use any of his cash to buy someone elses debt!

[AdeV]

United States Government?  That's the whole market economy. 

Now if the hotel owner would have been one of those cash and carry jerks then the whole town would still be in a depression.  Did anyone thank this tourist for his stimulus program or did they just want to see his birth certificate?

Of course, had any one of the debts been less than $100, the whole thing would have fallen apart, the "fiscal stimulus" would be shorted, the money having disappeared into the system.

Of course, you also have to appreciate that most economies - including that of the US - doesn't exist in a vacuum. You, as a nation, owe the Chinese $billions for example. I heard it said (so, therefore, it's unattributable), that China was in an amazingly strong position & if it foreclosed against  the US, it would basically end up owning the whole country...

If it makes you feel any better, the UK, Greece, Ireland, Spain, Portugal are all in a similar boat; and who knows what kind of mess Germany & France are in.... So, Europe's screwed, North America & Canada are screwed, Russia was screwed already, that basically leaves China, India and Australia... Interesting times ahead...

[vdubnut62]

Brush up on your Mandarin, anyone?
Ron

[LowGear]

You think we got problems?  Them workers in China are talking civil rights. 

Remember, we're too big of a creditor for China to let fail.  We must learn from Wall Street or perish.

Casey

[mobile_bob]

the inn keeper example only works in a "no tax" economy

layer on all the taxes the various businesses have to pay, and there likely would be less than a dollar
left for the traveler to pickup upon his return from room inspection.

when you reduce taxes, it works out very similar to removing the load from an overloaded 6/1
the engine will quit balking and blowing smoke and race back up to full rpm in short order.
then you can start to reapply the load (taxes) incrementally and in the end get more work done.

more work done = more taxes collected  in the long run

bob g

[LowGear]

Hey bob g,

Those are all business expenses.  Write offs or expenses are not taxable or balance the revenue. The pig farmer actually got a grant co-pay for fermenting pig manure and running his CoGen system with it.  The grant that paid for most of the CoGen was capitalized and written off in one year with the accelerated depreciation system.  Co-ops are non profit entities and don't usually pay taxes.  The Co-ops business consultant (business or health expense)- or hooker was under the table (don't think about it) and hence no tax.  The hotel proprietor doesn't report homeless transient accommodations on the schedule C but rather on the charitable contributions worksheet.  Aren't they all tax net neutral?  In fact, Most of these folks want to know when the Hell they get their tax refunds.  What a great country.

Casey

[mobile_bob]

all may be true, but

everyone save for perhaps the prostitute must pay the tax, then write it off and get a refund later in most cases.

the reality is most small businesses are sole proprietors and as such are taxed on personal schedules, and their deductions
are limited.

and sales taxes must be collected, and tendered to the state, so most steps will have that to contend with as well.

around here there is not only a sales tax on hotel rooms, but also some sort of entertainment tax as well, it works out to near
20% of the gate.

business and occupation taxes, and now the IMF wants our leaders to adopt a 1% federal sales tax, which will be attached to everything.

when you stop to think about it, its a bloody wonder the system worked as well as it did for as long as it did.

house of cards, and then they try to park a mack truck on top?  and then they are surprised that it collapsed?

bob g

[Crofter]

  Ya, I think we should entirely do away with any form of taxation and government. Lets return to the system of just stealing whatever you can get away with from whoever you can. That would weed out the weak, meek, and the stupid. The special interest groups get whatever is left over ;the ultimate selection for the most cunning and mean. It is a bunch of crap that the meek should inherit the world!

Stop yer whining and pay your taxes unless you want to take an awesome step back in time! Democracy does have its costs and right now that is why China can eat our lunch! There does seem to be a restlessness growing in their people though; heaven help us if they effectively assert an equal claim per capita on resources as N. Americans do. And you thought you have problems now!

[mobile_bob]

come on guys! holy geesh!

i am not a proponent of zero taxes, but i am a proponent of some constraints!

somewhere between the war of 1066 and the year 2010 things have gotten a bit out of hand, and likely will get
bunch worse next year if the current regime has their way.

bob g

[LowGear]

Reality Forms XY and Z

everyone save for perhaps the prostitute must pay the tax, then write it off and get a refund later in most cases.

(X.)  No. We write it off on the form and it's deducted from revenue before taxes are calculated.  Now here's something that's kind of interesting.  If you get a grant as a person you often pay income tax on it but if you get it as a business you can write off whatever you buy with the grant money understanding that it is an expense or asset for the business.  So, Find your bliss, Make it your business and Sam is your Uncle.  And if it is your bliss then you rarely have to work.  Listen to your Uncle.  He really only wants you to be happy and prosperous.

the reality is most small businesses are sole proprietors and as such are taxed on personal schedules, and their deductions
are limited.

(Y.)  No.  All businesses have about the same schedules and deductibles and pay about the same taxes.  Everything that you can legally shift into your business expense is a write off.  See (X.)

and sales taxes must be collected, and tendered to the state, so most steps will have that to contend with as well.

(Z.)  In most states sales tax is only collected on retail sales and not wholesale unless you are the end user.

around here there is not only a sales tax on hotel rooms, but also some sort of entertainment tax as well, it works out to near
20% of the gate.

(4.)  In Hawaii the sales tax (the most regressive I've ever seen besides an eight percent State Income Tax) is 4% and transient accommodations tax comes to 8.25% or a total of 12.25%.  Now here's the kicker in Hawaii; they charge the retailer sales tax on the sales tax they collect - The effective rate is 4.16%.  We're on a leasehold so we have to pay sales tax on our property tax that the lessor pays.

At Camp Aloha Tourists are beautiful people.

Casey

[Crofter]

come on guys! holy geesh!

i am not a proponent of zero taxes, but i am a proponent of some constraints!

somewhere between the war of 1066 and the year 2010 things have gotten a bit out of hand, and likely will get
bunch worse next year if the current regime has their way.

bob g

Ah, Bob, were you exaggerating a bit too? lol! No matter what "regime" was in power the fact that the infrastructure of the country has been degrading, energy costs escalating, jobs disappearing and numerous other negative effects on the cost of doing business, while revenue sources, being  geared to economic activity have simultaneously wilted. There seems to be a real perception that the economic system could collapse again and stimulus is a desperate attempt to stave it off. (Personally I dont see it as a solution either but it may be a deferral.)

I do hate to see it devolve into the morasse of partisan finger pointing since this is one hell of a lot bigger problem globally than mere partisan US politics. That only inflames the environment whereby underlying causes could be identified and solutions, even if painful, explored.

I dont think the present cost of supporting this level of social safety net, to be sustainable for much longer. Still, given the task of keeping the top from blowing out into paralysing social erruption or keeping the lid on it by raising taxes by some manner, I dont think there is much choice.

There certainly has been ongoing modeling of scenarios of how the populace will react to different actions. I am sure the societal scientists are employed by each flavor of political party. Each one may scribe a slightly different list of who to throw under the bus to keep it from going over the cliff but you better look back thirty years or so to find the point where a workable cure should have commenced. It is hard to do a brake job when going downhill full speed. Dont matter who is driving either. Well I guess it does if he gets to choose who go under for wheel chocks.

[mobile_bob]

over the last 30 years i have owned two sole proprietor and 2 C-corps, and now am in a partnership in a C-corp.

and i can tell you for sure, there is a huge difference in a sole proprietorship and a C-corp

also i can tell anyone that will listen that it is a myth that businesses pay no taxes, unless
they are quite large, because

the business owner pays the taxes, and they are heavy

for instance,

a one man, or two man (partnership) that is set up as a C corp will pay taxes as follows

if the business grosses 100k dollars per year and has a cost of goods sold of 50k dollars therefore there
is a net of 50k dollars profit

now if the owner(s) pays himself 25k dollars he will pay income taxes on the 25k, plus his half of FICA (approx 7.8%)
the business will pay the other half (approx 7.8%) so

the net profit left will be 50k - 25k+7.8% = 23k net

now the C corp will  have a 23k dollar net profit and will pay 15-20% tax on that money, or

the owner not wanting to pay the corporate tax will just take the complete 50k as income and pay income tax
and both halves of the FICA (approx 15.8%) so if he is in a 15% tax bracket he will end up paying
approx 31% in taxes minimum, and then there is state income tax on top of that in most cases.

and there is also taxes levied on inventory in many states which further hinders business,

and the list goes on and on from there.

this is why taxation can stifle the shitola out of business
if you have high corporate rates, the business will just release the bucks to the owners or stock holders to avoid
paying taxes on retained earnings, if you tax the begesus out of inventories businesses become catalog stores.
the end result is no growth, loss of employment and other cuts, because business cannot remain solvent and be in
a holding pattern, it must grow.

not saying there should be no taxes, just saying there has got to be a reasonable middle ground where the state gets some
funding and the businesses can grow and provide for employment.

as for the state...

when i don't make enough money to cover my expenses, i must make cuts
why would anyone think that government should operate in any other manner?

if i don't want to make cuts i must work harder, take a second job?

if government does not want to make cuts, then it must provide the business community the ability
to make a bunch of second jobs

right now it looks like business is having a hell of a time make enough "first" jobs.

and government jobs don't count, at least for the most part
they produce nothing of value, no product, or service that is what we could call value added.

what it does have is a butt load of land that it can parcel out leases on for lumber, mining, oil exploration, etc.

and it has monopolies on things like certain utilities, the post office, and licensing that they can make money with.

i can go on, but why bother?

either you get it, or you don't
those that get it are nodding their heads, those that don't probably never will until they start and run a business of their
own, and provide for employees and their families, and yes pay a ton of taxes.

bob g

ps. i am not supporting the abolishment of taxation, but finding a happy medium

[Crofter]

"and government jobs don't count, at least for the most part
they produce nothing of value, no product, or service that is what we could call value added."

Ah, there you go exaggerating again Bob! That is a popular whipping boy but in reality difficult now to simplify the process of administration which has grown in response to a spiral of social, economic and environmental complexity. Industry has not demonstrated that they will self regulate with anything but the bottom line in mind. We seem to have a little expression of this fact in the Gulf though the present goose on the grill was likely just one of the flock who hit the odds wrong.

The cost of a growing complexity of government or its cost as a percentage of GDP, however you want to express it is considered causative of past societies collapsing. On the other hand the entities that they were designed to regulate and control for the common good of people and environment would otherwise abuse the resource in the absence of regulators. If you think that would not be the case then you likely still believe in Santa.

I agree that there has to be a happy medium of what levies and controls to apply; some attempt to maximize efficiency! It makes it difficult when desparate , ignorant, or irresponsible governments offshore court our manufacturers with condidtions far lower than what they face at home. They then use that offer to blackmail domestic regulators for lower levels of compliance.

Yes industry pays heavy taxes and employs people but they are using and in many cases abusing planetary resources for virtually token sums. Some things are hard to place a value on as they are priceless or belong to future generations.

Every pressure group from industry to the welfare movement to the financial colossus is constanly putting forth material to lobby for a more favorable treatment. Some of it is such blatant propaganda and obviously self serving that it all must to be taken with a grain of salt. Granting their every wish would probably be the worst thing you could do for them in the long run.

I dont think there are any easy solutions and I dont see that it is a case of, "you either get it or you dont".