Corporatism / Socialism

[Coderguy]

Quote:

Originally Posted by ERD50 Exactly, ziggy. And someone will drop the price to grab market share (if there is share to grab), you can count on it. So in this alternate universe that Emeritus lives in, 1TB disk drives cost the same as they did ten years ago, because if we would pay $X ten years ago, we will continue to do so, and the reduced cost of production has just gone to CEOs and dividends. Sweet deal for CEOs and dividend earners (takers?). Amazing the things you learn on this forum! -ERD50

No. There is no incentive to grab market share when it comes to electricity. Nobody wants the bottom of the market - the top will pay whatever it costs and the bottom tends to default on accounts.

Your comparison to disk drives is just wrong. You are comparing two markets with completely different barriers to entry; completely different pricing scales (one can use discriminatory pricing to price across the spectrum, the other can't; just one example of the difference). One is also regional and the other world wide.

[ERD50]

Quote:

Originally Posted by Coderguy No. There is no incentive to grab market share when it comes to electricity. Nobody wants the bottom of the market - the top will pay whatever it costs and the bottom tends to default on accounts. Your comparison to disk drives is just wrong.

I was responding to the ziggy/Emeritus exchange (which included: at least not in a functional, competitive marketplace.). I agree, you can't compare disk drives to public utilities. But you can compare cost reductions in disk drives leading to lower consumer prices, and cuts in corporate taxes leading to lower consumer prices in any free market, competitive area (like bread).

I can't wait until we have some real competition in that area also. I don't see utilities having any sort of potential like Moore's Law, but we might get to a better place.

-ERD50

[SunsetSail]

Quote:

Originally Posted by Coderguy No. There is no incentive to grab market share when it comes to electricity. Nobody wants the bottom of the market - the top will pay whatever it costs and the bottom tends to default on accounts. Your comparison to disk drives is just wrong. You are comparing two markets with completely different barriers to entry; completely different pricing scales (one can use discriminatory pricing to price across the spectrum, the other can't; just one example of the difference). One is also regional and the other world wide.

Actually there is an incentive to grab market share for electricity. There are examples (I can't think of where at the moment - maybe NJ) where distributors are obligated to lease out their transmission lines to third-parties at regulated rates. To a certain degree this eliminates the barriers to entry and makes electricity a fungible commodity in which the low price provider can and does grab market share.

I thought the thread changed from electricity to bread in which case the drive analogy works, but I may not be following closely enough.

To address the OP's point about socialism, this looks more like government interference causing problems as opposed to a shift toward socialism.

My understanding is that Pennsylvania only partially deregulated the energy generation side of the business (maybe 60% or so). CA's failed attempt at deregulation was to deregulate 100% of the generation business. Distribution companies weren't allowed (by the public utility commission) to raise rates even though they were being charged higher prices by unregulated generators when energy costs went up (based on input costs increasing - which were ultimately cause by fraud, but that is a different story). This caused bankruptcies of distribution companies and didn't help anyone besides bankruptcy attorneys.

If my understanding is correct (that's a big if because I haven't followed PA very closely), the prices you are being charged are still fully regulated by the state. If PA is like other states, the price increase is in response to higher generation costs, it is reviewed by a public utilities commission and is based in large part on formulas.

It looks like classic government bungling through subsidies rather than socialism. Maybe there isn't a huge difference at some level?

[dex]

Quote:

Originally Posted by Emeritus The corporate tax issue is far far more complicated than this Assume that a corporation makes only bread Corporation charges for bread what the market will bear. they maximize revenue no matter what their costs are. If cost are below revenue they make a profit For costs They pay enders interst employees for work and have other costs of production. Taxes are just a cost of production. They pay profits to shareholders or top executives. Eliminate corporate taxes and they raise dividends Or executives bonusesl. They don't cut the price of bread since the price is already at the revenue maximising point so taxes compete with wages executive bonuses and dividends, poor people will pay the same for bread no matter how the profit loaf is sliced.

Corp taxes are a component of the price as wheat is to bread or oil to gasoline. When the price of oil goes down, the price of gasoline goes down.

If corp. taxes were eliminated (on bread for example), company A drops the price due to the elimination of the tax and company B offset the elimination of taxes by increasing another expense line item. The prices will be different on the shelves. The consumer will see the price difference.

There isn't anything complicated about it.

++++
Now the price of bread or your 'revenue maximizing' got to that point because of the marketplace where people could compare prices. Those mfg. that could make a profit at the market price stayed in business those that couldn't got out of the bread making business.

[Texas Proud]

Quote:

Originally Posted by dex Corp taxes are a component of the price as wheat is to bread or oil to gasoline. When the price of oil goes down, the price of gasoline goes down. If corp. taxes were eliminated, company A drops the price due to the elimination of the tax and company B offset the elimination of taxes by increasing another expense line item. The prices will be different on the shelves. The consumer will see the price difference. There isn't anything complicated about it. Why is any of this complicated? If, we were discussing an across the board corp. tax increase, would anyone question that companies would add that to the price of the goods?

My bold.....

OK... there are economist here somewhere.... but I will try and explain the best I can...

They will try and add the extra tax to the item.... but they can not add all the tax... as Ziggy was saying, there is a curve of supply and demand.. I will also do some math, but all are made up numbers...

Say you sell widgets... there are a certain number of people willing to pay $12 per widget, some more at $11 per widget and even more if you drop it to $10, $9 etc.. You price the widgets to sell a certain volume at a certain price to try and maximize profits (but you also need to think long term here)...

Sooo, gvmt raises taxes on widgets by $1... that does not mean the person who would buy at $9 will now buy at $10.... no, he will still only buy at $9... What does a company do They increase the price by a percent of the tax increase... it might be 1/2, 3/4 or even higher according to the demand line... so the company has to pay the gvmt the full $1, it is not able to collect the full amount from the consumer... so in reality the company is making less money due to the tax. Not a full $1 per widget, but less...

[ERD50]

Quote:

Originally Posted by Texas Proud Sooo, gvmt raises taxes on widgets by $1... that does not mean the person who would buy at $9 will now buy at $10.... no, he will still only buy at $9... What does a company do They increase the price by a percent of the tax increase... it might be 1/2, 3/4 or even higher according to the demand line... so the company has to pay the gvmt the full $1, it is not able to collect the full amount from the consumer... so in reality the company is making less money due to the tax. Not a full $1 per widget, but less...

If there are alternatives to those $10 widgets, then yes (and there usually is).

The other side of that, if they sell fewer of them at $10, that means fewer jobs, which means more competition for jobs, which means lower wages, which means even fewer people can buy $10 widgets. Rinse-repeat.

Was there a bright side in there?

-ERD50

[ERD50]

Quote:

Originally Posted by Emeritus The corporate tax issue is far far more complicated than this...

Quote:

Originally Posted by dex Corp taxes are a component of the price as wheat is to bread or oil to gasoline. When the price of oil goes down, the price of gasoline goes down. .... There isn't anything complicated about it.

One thing I've learned - if the simple and correct answer doesn't give someone the answer they like, they may be motivated to complicate it, so they can come up with a different 'answer'.

-ERD50

[samclem]

Quote:

Originally Posted by Texas Proud Sooo, gvmt raises taxes on widgets by $1... that does not mean the person who would buy at $9 will now buy at $10.... no, he will still only buy at $9... What does a company do They increase the price by a percent of the tax increase... it might be 1/2, 3/4 or even higher according to the demand line... so the company has to pay the gvmt the full $1, it is not able to collect the full amount from the consumer... so in reality the company is making less money due to the tax. Not a full $1 per widget, but less...

Another loss to the economy comes in the case of all those folks who were going to buy the $9 widget but now won't buy the higher-priced one. The $9 widget offered some value to them (maybe increased ability to produce things in their company, maybe more enjoyment in their life, etc) and whatever "value added" the purchase would have represented (above the $9)--to themselves and to the economy as a whole, is forfeited. They'll maybe buy something else, but it won't add as much value as the $9 widget would have produced.
Taxes on corporations are regressive for the same reason sales taxes are regressive: People with lower incomes spend a higher percentage of their income on goods and services. Thus, corporate income taxes get passed along disproportionately to the poor.

[dex]

Quote:

Originally Posted by Texas Proud My bold..... OK... there are economist here somewhere.... but I will try and explain the best I can... They will try and add the extra tax to the item.... but they can not add all the tax... as Ziggy was saying, there is a curve of supply and demand.. I will also do some math, but all are made up numbers... Say you sell widgets... there are a certain number of people willing to pay $12 per widget, some more at $11 per widget and even more if you drop it to $10, $9 etc.. You price the widgets to sell a certain volume at a certain price to try and maximize profits (but you also need to think long term here)... Sooo, gvmt raises taxes on widgets by $1... that does not mean the person who would buy at $9 will now buy at $10.... no, he will still only buy at $9... What does a company do They increase the price by a percent of the tax increase... it might be 1/2, 3/4 or even higher according to the demand line... so the company has to pay the gvmt the full $1, it is not able to collect the full amount from the consumer... so in reality the company is making less money due to the tax. Not a full $1 per widget, but less...

I deleted that part while you were writing because I could see how it could get things off track. In specific cases there can be times where companies do not raise prices due to a component price increase. For example, cost component for wheat in bread might be small (and go up and down) (marketing, labor, baking higher) so companies do not change their prices with the fluctuation in the price of wheat.

I think Ziggy's example, is good for a new product being introduced and you are trying to establish the price. In a mature market, the marketplace establishes the price.

Eventually, a business has to look at its p/l and return on equity and decide if it wants to stay in that industry. If enough companies get out, the remaining companies can get pricing power - increase the prices to make staying in the industry worth it for them at the level of demand of the marketplace.

[Texas Proud]

Quote:

Originally Posted by ERD50 If there are alternatives to those $10 widgets, then yes (and there usually is). The other side of that, if they sell fewer of them at $10, that means fewer jobs, which means more competition for jobs, which means lower wages, which means even fewer people can buy $10 widgets. Rinse-repeat. Was there a bright side in there? -ERD50

Not always on the alternatives... because the alternative also can be NOT having a widget... (ie, cell phone for some)...

[BigNick]

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Originally Posted by SunsetSail It looks like classic government bungling through subsidies rather than socialism. Maybe there isn't a huge difference at some level?

All governments are pretty poor at getting things done, even the things that governments have to do, like defence and justice.

Socialism is just a more systematic attempt to improve a wider range of things (by "getting everyone to do the right thing", with "help" from the government). The only way in which it's worse than regular government not-being-very-good-at-stuff is that there is typically a better alternative. It's not evil or anything.

And in some cases, there isn't a better alternative, especially for things where a certain level X of provision for all is considered "better" than the likely free-market outcome of 10X for some and 0.1X for others. You can't get much more socialist than the US public school system; it just wasn't put in place by people using the S word. (I never understood why the US health care reforms were so vehemently opposed, not just by home schoolers and other minimal government types, but also by people who apparently had no trouble with their kids being educated by the state.)

[Emeritus]

Quote:

Originally Posted by ziggy29 I'm as cynical about corporations as the next guy, but I don't follow this -- at least not in a functional, competitive marketplace. In terms of maximizing profit, there is a sweet spot always in terms of price -- set it too high and the loss of sales more than offsets the gain in per-unit profit. Set it too low and you're leaving money on the table because increasing the price won't lose sales faster than profits will grow. (Warning -- math ahead) Roughly speaking the "curve" is essentially a negative quadratic equation where the best price to charge is the maximum point of the curve where the value on the y-axis is at its peak; that is, where the derivative of that equation is zero. In a competitive marketplace, if the *cost* of making bread drops by 25 cents, there's no need for me to lower my price if no one else does. But as soon as someone lowers the price 15 cents, they gain market share, possibly enough to increase overall profits (since that reduced cost shifts the entire graph to the left). Another bread maker has to follow suit and cut their prices as well. By removing some of the cost from the equation, the "sweet spot" changes if the market is functional and competitive. (Okay, no more math.) Unlike payroll taxes for employees, which I don't think employers would pass on to employees in the form of higher pay, I think they *would* pass on much of a tax cut to *customers* in this environment. Businesses aren't competing much to attract and retain employees these days, but they are furiously competing to attract and retain customers. Having said that, I'm not advocating for eliminating the corporate income tax. I just don't think businesses could withhold the benefit from customers in this economy like they could from employees.

I agree that assuming a business is profitable at all. all the firms in the market will price the product at essentially the same "revenue maximizing point." This is a function of the demand. But the overall demand curve for the product is not affected by the costs of production. Whether I produce oil at 10 dollars a barrel or 40 dollars a barrel the shape of the demand curve is the same. the question is where to set the price which depends on that shape. if under this hypothetical the revenue maximizing price of oil is 100 dollars a barrel and the tax is 25 dollars it has no effect on the consumer. It just means one company is more profitable than another. now if oil costs 90 dollars a barrel to produce and you put on 25 dollaras a barrel tax you will decrease consumption because of the price increase.

my point is simply that you cant say a priori that corporate taxes are regressive.

[Emeritus]

Quote:

Originally Posted by samclem Another loss to the economy comes in the case of all those folks who were going to buy the $9 widget but now won't buy the higher-priced one. The $9 widget offered some value to them (maybe increased ability to produce things in their company, maybe more enjoyment in their life, etc) and whatever "value added" the purchase would have represented (above the $9)--to themselves and to the economy as a whole, is forfeited. They'll maybe buy something else, but it won't add as much value as the $9 widget would have produced. Taxes on corporations are regressive for the same reason sales taxes are regressive: People with lower incomes spend a higher percentage of their income on goods and services. Thus, corporate income taxes get passed along disproportionately to the poor.

general Sales taxes are regressive, although sales takes on luxury goods may not be regressive

you cannot generalize that corporate taxes are regressive.

[SunsetSail]

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Originally Posted by Emeritus general Sales taxes are regressive, although sales takes on luxury goods may not be regressive you cannot generalize that corporate taxes are regressive.

It depends on whether you are applying the terms in their tradditional manner - i.e., the rate of tax in relation to income. Sometimes regressive, progressive and flat are used to describe a tax based on the overall tax burden and other times the tax burden as a percent of income as well.

In regard to a straight percent, sales taxes are flat - the same rate applies regardless of your income. Assuming that consumption doesn't go up proportionally to income increases, the actual tax burden relative to income is regressive.

Another apples to oranges problem is trying to apply these terms to customers when the tax itself is far removed from customers. Corporate taxes are progressive from all measures in regard to the corporate entity. But who knows in regard to the consumer because there are so many variables.

A VAT would reduce the economic distortions so long as all other forms of tax are eliminated.

[Emeritus]

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Originally Posted by SunsetSail It depends on whether you are applying the terms in their tradditional manner - i.e., the rate of tax in relation to income. Sometimes regressive, progressive and flat are used to describe a tax based on the overall tax burden and other times the tax burden as a percent of income as well. In regard to a straight percent, sales taxes are flat - the same rate applies regardless of your income. Assuming that consumption doesn't go up proportionally to income increases, the actual tax burden relative to income is regressive. Another apples to oranges problem is trying to apply these terms to customers when the tax itself is far removed from customers. Corporate taxes are progressive from all measures in regard to the corporate entity. But who knows in regard to the consumer because there are so many variables. A VAT would reduce the economic distortions so long as all other forms of tax are eliminated.

A tax on the benefits of doing business in the corporate form is a perfectly reasonable excise or use tax. Corporations have perpetual existance and limited liability. Those are valuable legal benefits created by the state for which the state legitimately can charge a tax. Anyone can avoid the tax by doing business in a personal form.

[HFWR]

Corporations are people, too.

[SunsetSail]

Quote:

Originally Posted by Emeritus A tax on the benefits of doing business in the corporate form is a perfectly reasonable excise or use tax. Corporations have perpetual existance and limited liability. Those are valuable legal benefits created by the state for which the state legitimately can charge a tax. Anyone can avoid the tax by doing business in a personal form.

I don't think I'm saying anything contradictory to your statement, but I'm not entirely sure what you mean. I agree that a corporate level tax is completely legitimate. I just would prefer a type of tax that provides more clarity from an economic standpoint.

A use tax definitely and typically an excise tax are transaction taxes, so they are more akin to a VAT than an income or franchise tax. I guess I am not really understanding your statement.

[samclem]

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Originally Posted by BigNick (I never understood why the US health care reforms were so vehemently opposed, not just by home schoolers and other minimal government types, but also by people who apparently had no trouble with their kids being educated by the state.)

There's a reason the proponents of US single-payer healthcare didn't use the US public schools as a positive example of a similar service provided by the government--because the opponents were already making full use of that example.

"We all think our schools are doing a great job, so let's have the government take over healthcare." It's an effective argument, all right . . .

[Independent]

Quote:

Originally Posted by Emeritus I agree that assuming a business is profitable at all. all the firms in the market will price the product at essentially the same "revenue maximizing point." This is a function of the demand. But the overall demand curve for the product is not affected by the costs of production. Whether I produce oil at 10 dollars a barrel or 40 dollars a barrel the shape of the demand curve is the same. the question is where to set the price which depends on that shape. if under this hypothetical the revenue maximizing price of oil is 100 dollars a barrel and the tax is 25 dollars it has no effect on the consumer. It just means one company is more profitable than another. now if oil costs 90 dollars a barrel to produce and you put on 25 dollaras a barrel tax you will decrease consumption because of the price increase. my point is simply that you cant say a priori that corporate taxes are regressive.

Are you sure that you meant the bold, or did you mean "all companies are less profitable than they were before the tax increase"? After all, the tax is the same for everyone.

The next step is that investors move capital to where it's most profitable. If it's a tax on gasoline, then investment flows out of gasoline refining until there are fewer competitors who can then charge enough to recoup their cost of the gasoline tax.

If one state has a high tax on manufacturing activies, and the surrounding states don't, manufacturers can move to the lower tax states. The same is true for nations. In the last few decades, it has become extremely easy to move capital across international borders. Americans who want to invest in corporations don't have to do it in the US. If US corp taxes are higher than other countries' taxes, that becomes one factor in a decision on where to invest.

But it's much harder for workers to move. Hence, when we put a tax on corporations, it's likely that the economic impact of the tax will fall on workers, who need to accept lower wages to keep owners here.

These guys estimate that 70% of the US corp income tax is borne by workers, and 30% by owners. http://www.cbo.gov/ftpdocs/75xx/doc7503/2006-09.pdf

If we really want to tax the owners of capital, it's much more direct to do it when they receive capital income. Then we get the tax regardless of where they invested and there is no tax incentive to invest abroad (there may be a tax incentive to physically move abroad, but now we're talking about relative individual taxes).

[Zathras]

Quote:

Originally Posted by samclem There's a reason the proponents of US single-payer healthcare didn't use the US public schools as a positive example of a similar service provided by the government--because the opponents were already making full use of that example. "We all think our schools are doing a great job, so let's have the government take over healthcare." It's an effective argument, all right . . .

I believe that comparison was not to argue that gov. health care will be effective. But to show another example of 'socialist programs'.
There are a number of people arguing that the health care program is socialism. Yet we have examples of other programs these same people don't seem to be up in arms against.