Althouse: "Most of Apple’s $82 billion cash stockpile is ‘trapped’ overseas."

January 13, 2012

"Most of Apple’s $82 billion cash stockpile is ‘trapped’ overseas."

"Which means [it's] not available to create jobs."

53 comments:

Mark said...: I feel so terrible for them, without a tax loophole to move their money through.

Has Apple ever paid the full 35% corporate rate on any of their current taxes?

Why should I consider the 35% a valid talking point if they never pay at that rate?; 1/13/12, 9:53 AM
Bob Ellison said...: Similarly, I've got about $10 "trapped" in my wallet, because I could've bought a sandwich yesterday, but didn't, because I thought it'd be cheaper to make one at home.; 1/13/12, 9:54 AM
Anonymous said...: I agree with the above--I'm open to the argument that corporate taxes are too high, I'm even open to the argument that there shouldn't be corporate taxes (because it's really just a hidden tax on the consumer), but I'm not open to the argument that some special rule should be created allowing Apple to keep all its money simply because it has so freakin much of it.; 1/13/12, 9:56 AM
KCFleming said...: But but but ....Bain!!!

BTW, Althouse, the left doesn't understand economics in the least. There's no point putting posts up to challenge their view. It won't work.

Ideologically, it's like they're colorblind. They cannot comprehend it.

Even a smart guy like Krugman is dense as hell here. He actually believes there is a multiplier greater than 1 for government spending.

Talk about your Flying Spaghetti Monsters.

NYT calumnist Tom Friedman also believes in the socialist unicorn. It's impossible to fix that degree of stupidity.

(Yes, calumnist.); 1/13/12, 9:57 AM
Seeing Red said...: You mean Jobs didn't care about the little people? Who would have known?; 1/13/12, 10:02 AM
Joe Schmoe said...: Sure it's available for jobs. They'll just be jobs in China, India, and any other up-and-coming technology manufacturer overseas, like South Korea.

Apple's a global company. They'd be stupid to have all their cash in one country's domain. Spreading it out is the smart thing to do and protects them in the event that a national ecomony goes bust (e.g. Europe).; 1/13/12, 10:08 AM
edutcher said...: In a nutshell, how the Lefties have been driving jobs out of the country for 80 years.

Throw in all the EPA and OSHA regs as well as union "work" rules and even Hatman could understand it.; 1/13/12, 10:11 AM
Dust Bunny Queen said...: Who says that the money 'trapped' overseas was ever going to 'create jobs' anyway?

Maybe the company wants to do something else with the funds. It is THEIR choice.

If they want to buy purple giraffes for everyone in their company and throw the biggest party evah!! they can.

They are not obligated to 'create jobs'.

In fact, they may want to decrease jobs. It is none of our business.; 1/13/12, 10:15 AM
Michael said...: Pogo has it exactly right relative to the financial acumen of the left. For the most part lefties have never owned or started businesses or studied the topic in school. They are spectacularly innumerate.

DBQ, as usual, has the immediate topic pegged. Businesses are not formed, maintained, sold, acquired or dismantled to "create jobs." they are there for the purpose of making the owners and investors money. That said, the trapped cash would make a spectacular dividend if they thought that was the wisest use of the capital. As it is they do not. It would also be stupid on stilts for them to repatriate at current tax rates. Better to be used to expand operations overseas.; 1/13/12, 10:23 AM
David said...: This money was not made in the United States because it can't be made in the United States. Apple does most of its production offshore because they must do so to compete. Even Apple can not charge any price it wants, just for the privilege of paying higher US costs and taxes. Plus a large percentage of their customer base is overseas.

Just to understand how onerous the corporate tax system is, suppose that Apple then pays the $54 billion out to its shareholders in dividends.

The dividends are taxed at 15% (more if you consider state taxes, surtaxes, AMT etc.). That sends another $8.1 billion to the federal government.

In short, nearly half of the hard earned profit goes to the feds if they repatriate the cash and pay it out to shareholders.

Some may think that's a great result. But it's not the way to create growth and jobs.; 1/13/12, 10:30 AM
Levi Starks said...: The story is obviously an attempt to paint Apple as unpatriotic.
Apple is one of the biggest corporations on earth. And that 82billion that they've acquired is by making products that consumers around the world have bought with their own hard earned money because they felt like it was the best product they could afford to buy.
It's taken them 30 years of hard work and risk taking to amass that large a sum. By contrast 82B would not be enough to reduce to zero the deficit of one month of the current US budget. (not that we actually have a budget)
If you had 82B where would you put it?; 1/13/12, 10:41 AM
Dust Bunny Queen said...: If you had 82B where would you put it?

I sure wouldn't put in into the hands of the US Government. You might as well buy the purple giraffes. You'd get a better return on your investment and you would definitely be able to SEE where your money went.

Seriously. I would invest in building businesses or expanding my business in areas of the world that will be experiencing growth and that are more business friendly. India and Malaysia come to mind.; 1/13/12, 10:55 AM
ic said...: Mark: the trapped money was earned overseas, they paid host countries taxes. They'll have to pay another tax moving their money back.

Apple should invest in where their money comes from.

It's not a special rule for Apple. So happens Apple has most money and is preyed on by politician vultures. You know what, Apple can headquarters in the Caymans and not pay US taxes. Their main office can stay in Cupertino.

Do you think it's fair that corporations and the "rich" pay more taxes to finance politicians' vote buying? What happened to the $435 million of taxpayers' money given to billionaire Kaiser's Solyndra? Solyndra's gone bankrupt, workers lost their jobs, management is getting bonuses, Kaiser gets his payback and doubles his bundles to support Obama's re-election. What happened to the three quarter billion given to Pelosi's brother-in-law? Another $400 million to billionaire Perelman? $20 billion to Soros Brazil Petrobra, $2 billion to Al Gore's Spanish green tech? Those are tax money from corporations and the "rich" re-distributed to the super rich. The money given away so readily to the super rich dwarf whatever Apple earns.; 1/13/12, 10:58 AM
ic said...: "US$54 billion of Apple’s overall $82 billion in cash is in offshore accounts'...

If Apple attempted to bring that money into the States, through the magic of taxes that $54 billion would transform into $35.1 billion, with the other $18.9 billion disappearing down the federal money hole."

Apple was on the verge of banruptcy before the second coming of Jobs. It may do so again if it does not have another "killer" product. Are we going to bail it out?; 1/13/12, 11:13 AM
Known Unknown said...: If they want to buy purple giraffes for everyone in their company and throw the biggest party evah!! they can.

Well, that could create jobs for purple Giraffe trainers and party planners.; 1/13/12, 11:22 AM
holdfast said...: But remember, Apple already paid the local corporate tax rate in the country in which the money was earned.

The US is the only nation in the civilized world which taxes its corporations this way.; 1/13/12, 11:33 AM
Christopher J Feola said...: Those who levy taxes make the same mistake over and over:
-The business of a business is to make profits.
-If you raise taxes high enough the most profitable thing for a business to do is to avoid taxes.

Simple question: where else could Apple get $18.9 billion?

I guess there's a simple question about all this tax rhetoric: Which is more important to you-having the highest tax rate, or collecting the most tax money?

cjf; 1/13/12, 11:49 AM
Moose said...: Well, so is quite a few other large company's money. Not to give Apple any slack on this, but its endemic to American companies as a whole. Another feature from your old friend, "unintended consequences". It's amazing how often government gets it wrong...; 1/13/12, 11:57 AM
Dust Bunny Queen said...: It's amazing how often government gets it wrong...

Why....it is almost like they don't have a fucking clue about what they are doing. It is as if they have no real world experience.

Nah. Can't be.; 1/13/12, 11:59 AM
MayBee said...: The US is the only nation in the civilized world which taxes its corporations this way.

And one of what? 3? that does the same to our citizens.; 1/13/12, 12:08 PM
cubanbob said...: The shareholder would lynch the board of directors if they repatriated the money. And rightfully so. Giving US corporations the incentive to repatriate their profits would be the true stimulus package, not the idiocy of the last three years.

The duty of management is to the owners, not to waste their money on unnecessary foolishness such as paying taxes they don't have to for services never rendered. But the idiocy of the left is eternal and like the weather there is nothing that can be done about it.; 1/13/12, 12:12 PM
ken in tx said...: Corporations don't pay taxes, they collect taxes from consumers and pass them on to the government. This needs to be repeated loudly and often.

possible double post, blogger said the first one did not work.; 1/13/12, 12:36 PM
Col Mustard said...: Apple was on the verge of bankruptcy before the second coming of Jobs. It may do so again if it does not have another "killer" product. Are we going to bail it out?

Apple's new "killer" product is the iCloud. You vill be coerced to keep all your favorite stuff there and share from there. It will cost you money (and privacy and control of your data).

I like to work with pictures and video and treated myself to the Big iMac for Christmas. So purty.
But just try burning a slide show or video on the thing. Absent third-party solutions, no-can-do, anymore. Apple, without fanfare (or forthright acknowledgement) removed the dvd-burning software from the latest version of OS X. In spite of the existence of the software, Apple will not sell it to you.

You can, of course, stream your stuff to the cloud or facebook and the like and expose yourself to the copyright police and God knows who else. If Apple and Google and Facebook have their way, those nasty dvds will soon join 8-track, VHS and floppies in the Tech Museum. Bastards.

Amazon was kind enough to let me return the thing yesterday and seemed genuinely interested in the fact that Apple had altered the capabilty of the machine.; 1/13/12, 12:43 PM
Revenant said...: Why should I consider the 35% a valid talking point if they never pay at that rate?

I neither know nor care if Apple has ever paid the 35% rate.

The point is that the existence of that 35% rate distorts the economy in ways that hurt Americans.; 1/13/12, 1:23 PM
Revenant said...: Why....it is almost like they don't have a fucking clue about what they are doing. It is as if they have no real world experience.

The funny thing is... that's the *optimistic* view.

I would say they know exactly what they're doing: winning votes. Either the corporations pay the tax (win) or they keep the money overseas, making them great targets for demagoguery (also win).

Most Americans are too ignorant to understand that every penny a corporation makes ultimately ends up as one or more peoples' income. Ergo corporate taxes are pointless; all they do is get corporations to waste a lot of money and effort trying to minimize tax liability. Oh, and earn votes for politicians.; 1/13/12, 1:36 PM
Anonymous said...: How much of this cash (or any company w/large amounts of cash overseas) is in Europe and subject to risk from the European financial crisis?; 1/13/12, 2:03 PM
Brennan said...: Would this be why Apple is rumored to be making a bid for the full broadcast rights to the English Premier League?

If your cash is stuck overseas it will flow to the easiest place to park it while also earning returns.; 1/13/12, 2:25 PM
Brennan said...: This is an act of patriotism. Apple farts in the general direction of the US corporate tax octopus.; 1/13/12, 2:30 PM
cubanbob said...: ChRanier said...
How much of this cash (or any company w/large amounts of cash overseas) is in Europe and subject to risk from the European financial crisis?

1/13/12 2:03 PM

Whatever the risk actually might be, the perceived risk at this time isn't worth a 35% risk premium.

If the democrats had any brains (but then again if they did they would not be democrats)they would join with republicans and abolish the corporate income tax and just tax the pass through to the shareholders. Cleaner, simpler and more economically efficient and would eliminate a lot of corruption.

But that is too simple and transparant for politicians and bereft of opportunities for graft.; 1/13/12, 2:46 PM
Anonymous said...: Similarly, I've got about $10 "trapped" in my wallet, because I could've bought a sandwich yesterday, but didn't, because I thought it'd be cheaper to make one at home.

I hope this is as sarcasm because there is no similarity at all.

An actual similarity would be this:

You bought the sandwich at store Y, instead of store X because when you go into store X, the host or hostess takes 35% of whatever is in your wallet before you can buy anything in the store, whereas store Y simply sells you a sandwich without intruding in on and stealing the contents of your wallet for the simple pleasure of stepping into store X.; 1/13/12, 3:06 PM
Anonymous said...: Who says that the money 'trapped' overseas was ever going to 'create jobs' anyway?

Seriously? If the money is saved, then wherever it is saved will lend out that money to be invested. If it is spent then that spending increases demand on whatever the money is being spent. Either way, both of these activities increase the number of jobs compared to how many jobs exist without that money. In fact, even your example does this.

If they want to buy purple giraffes for everyone in their company and throw the biggest party evah!! they can.

The people who cater that party, supplying the food and drink have jobs because of this spending. The people who breed purple giraffes have jobs because of this party. The people who own and operate the venue where the party is being held have jobs because of this party.; 1/13/12, 3:11 PM
Dust Bunny Queen said...: Seriously? If the money is saved, then wherever it is saved will lend out that money to be invested. If it is spent then that spending increases demand on whatever the money is being spent. Either way, both of these activities increase the number of jobs compared to how many jobs exist without that money. In fact, even your example does this.

You are, of course correct.

However, we all know that isn't what the Democrats mean when they petulantly demand that Apple or other companies bring their money back to the United States.

The expectation is that Apple itself will add to its work force and 'create jobs' by hiring more people do do whatever it is that Apple does.

The expectation is that if Apple doesn't 'create jobs' then the government will confiscate their money and magically wave a big assed fairy godmother wand and 'create jobs'.

In fact, by following your rationale of allowing the money that was saved and earned to be spent into the economy and that spending therefore by default 'creates jobs'.....then if the Government let us KEEP more of our money (instead of confiscating it) we the people would spend it and create a lot more jobs.

The money spent directly by the businesses and by the PEOPLE would in fact create MORE jobs than the government because there would not be a gigantic black hole, called the Federal and State governments, that sucks up a big portion of the funds before they get to the job creators or even to the employed.

If we have more money IN our own pockets we can more quickly and more directly increase the velocity of money.

For every dollar of taxes stolen by the government, it is probably that only 15 cents actually goes towards the 'creation of jobs'.

* as if jobs are some sort of product that we can manufacture from thin air with no demand and shove out on an assembly line.; 1/13/12, 3:27 PM
Anonymous said...: Thanks for the clarification, Bunny.; 1/13/12, 3:35 PM
Revenant said...: Who says that the money 'trapped' overseas was ever going to 'create jobs' anyway?

I'm trying to think of how I could spend $85 billion of my own money without creating any jobs. So far I've come up with "spend $20 on a paper shredder and feed the other $84,999,999,980 into it".

Maybe you're more imaginative than me?; 1/13/12, 3:37 PM
viator said...: One of Sarah Palin's proposals in the Indianola speech addressed this problem. She advocated eliminating the corporate income tax which would immediately repatriate approximately $1.5 trillion of offshore monies including Apple's profits and at the same time eliminate the ongoing scam of congress selling tax loopholes to corporations for campaign contributions.; 1/13/12, 4:35 PM
Bob Loblaw said...: Has Apple ever paid the full 35% corporate rate on any of their current taxes?

No, and neither does just about any multinational. Most of them use offset pricing schemes to move US profits to places like Ireland where the corporate tax is lower.

Corporate taxes are a feel-good policy for people who think they're getting something for nothing instead of paying the tax when they buy products and services. In the case of the Ireland shifters like Microsoft, American consumers are paying Irish taxes.

You must have to be a genius to work in Washington.; 1/13/12, 4:59 PM
Anonymous said...: Revenent, you are still creating jobs for paper shredder companies. But along this line, you could just get all that money into a room and leave it there never to spend.

But even this is good for everyone else. By taking $85B out of circulation, you increase the purchasing power of all other dollars that are being spent.

Having Apple's money overseas like this doesn't do this, since I'm sure Apple doesn't have an extra room somewhere to house $85B in cash, so they have it stored in a financial institution. This institution is using that money to finance other investments. But since this money will remain overseas (many places outside the US accept dollars as currency), the investments will too (otherwise they will be subject to the same taxes). Thus all the jobs created from these investments will be overseas.

In other words, this tax policy is actively driving jobs from the US to overseas locations. Not to worry, though, somebody in favor of corporate taxes (especially high corporate taxes) will simply dismiss this as non-sense and continue to enact policies that drive jobs away from the US.; 1/13/12, 5:28 PM
Jason said...: Hey, libtards! Which represents more money for the Treasury? 10 percent of an assload of money? Or 35 percent of nothin'?

I'm looking at you, Garage!

Answer on point for once in your pathetic, miserable existence.; 1/13/12, 6:26 PM
rcocean said...: Apple is a global company with plants , officers, stockholders, and employees all over the world.

If you think its "American" you're an idiot.; 1/13/12, 6:32 PM
rcocean said...: "Corporations don't pay taxes, they collect taxes from consumers and pass them on to the government."

That's bullshit. Corporation's sell stuff based on what price maximizes revenue. It doesn't raise or lower prices based on how much Tax it pays.

As stated above, Apple is a global corporation, the effect of the US corporate tax rate is minimal.; 1/13/12, 6:35 PM
Anonymous said...: That's bullshit. Corporation's sell stuff based on what price maximizes revenue. It doesn't raise or lower prices based on how much Tax it pays.

First and foremost, corporations are collections of individuals pursuing a common goal and interacting with other individuals, who may be working with other individuals towards a common goal or simply by himself. All taxes are paid by the individual. Either the customer or the shareholder. You cannot get something for nothing; all taxes have costs. Those costs fall on individuals. Obfuscating or deliberately misunderstanding that fact by calling a collection of individuals corporations is simply a game to be played to ignore the very real human costs of taxation.

Additionally, you clearly have no idea how much your third sentence contradicts the second. Taxes affect revenue. Raising taxes reduces revenue. Because of this government imposed reduction in revenue, prices will certainly be affected, as the incentives for the individuals changed.

Do you really think that taxes are a free lunch? That government taking wealth from people has no costs?; 1/13/12, 6:58 PM
rcocean said...: ken,

I have no idea how your post related to mine. I know my point, I don't know what your's is.

So I'll restate my point. Corporation charge what the market will bear. The price consumers pay is base on that. Remember that supply and demand curve from Econ 101?

Whether Apple, for example will raise it prices to "pass on a tax" or eat it will depend on a lot of factors. Therefore, to say consumers ultimately pay the Corporate tax is bullshit. If that's the case, why are Corporations trying to get rid of it? After all, if they pass on the tax, what do they care?

Its Bullshit argument, like "free trade is ALWAYS good" or "Immigration ALWAYS makes everyone richer".; 1/13/12, 8:37 PM
Automatic_Wing said...: And which corporations are "trying to get rid of" corporate taxes, rcocean? Certainly not Apple.; 1/13/12, 8:44 PM
Known Unknown said...: Whether Apple, for example will raise it prices to "pass on a tax" or eat it will depend on a lot of factors. Therefore, to say consumers ultimately pay the Corporate tax is bullshit. If that's the case, why are Corporations trying to get rid of it? After all, if they pass on the tax, what do they care?

If they paid less in taxes, they could lower prices (thsu the tax burden to the consumer) increase volume, and make more money.

Or they could invest in R&D, new lines of business, acquisitions, expansion, or purple giraffe parties.

All of which is part of GROWTH POLICY which no one in Washington talks about anymore.; 1/13/12, 9:53 PM
Known Unknown said...: Corporation charge what the market will bear.

Taxes distort markets.; 1/13/12, 9:54 PM
Carnifex said...: @$#@$#@%@$&#&$# damn computer

Had a long post trying to explain to rcocean econ 102 and hit the wrong button and erased everything.

So I'll settle for a quote by Jack Kennedy (the second coming before Obama for dems) "A rising tide floats all boats", ya' douche.; 1/13/12, 10:03 PM
Anonymous said...: I have no idea how your post related to mine.

Because you talk of a corporation as if it's devoid of any real humans, when in fact corportations are groups of people cooperating to achieve some objective. When you raise corporate taxes, you raise taxes on these people and their consumers. McDonald's doesn't pay their corporate taxes, their customers, shareholders (through lower stock prices and dividends) and employees (through lower wages) do. Reading what you've written about corporate taxes you seem blithely aware that it is a double tax. You first tax employees for income, consumers in sales tax, and shareholders in capital gains, then take from these people further, but call it "corporate" taxes, as if some piece of paper or sign, not hard working people bear this burden.

to say consumers ultimately pay the Corporate tax is bullshit.

Since corporations only earn money through consumer transactions it's merely a tautology to say that consumers pay corporate taxes. To say that's "bullshit" is simply to say that you don't understand markets, which is taught in Econ 101.

If that's the case, why are Corporations trying to get rid of it?

Because they know higher prices reduce consumption. The best way to maximize profits is to sell to as wide an audience as possible. Ask Sam Walton. Addtitionally, since the US has one of the most highly skilled workforce and the most dynamic work force, executives want to do business in the US as much as possible, particularly high tech companies like Apple. Since the government takes 35% right off the top, it's not worth it to tap that US work force. While they don't make as much money as they could using foreign workers as they could using US workers in a free market, they can make more using foreign workers because greedy politicians make it that way and are supported by useful idiots such as yourself.

Its Bullshit argument, like "free trade is ALWAYS good" or "Immigration ALWAYS makes everyone richer".

No one makes these arguements. The arguemnt is that in the long run both ARE good and DO make people richer. But why bring these up? These are simply red herrings to distract from your own demonstrable stupidity.; 1/13/12, 10:55 PM
Anonymous said...: Its Bullshit argument, like "free trade is ALWAYS good"

I'd also like to clarify that free trade is always good. I don't think this is clear from my previous comment, since I was addressing immigration as well. The reason free trade is always good is because the freedom to do what I want with my own body, capital, and property is good. In fact, that is the definition of free trade. Since this liberty is equivalent to free trade and that liberty is always good, free trade is good.

Tell me, what is good about reducing my choice about what products to purchase? Is it good to force me to buy hamburgers exclusively from McDonald's rather than any other hamburger vendor? If not why not?

Even you should be able to figure out that keeping me from purchasing a burger from Wendy's, Five Guys, or Outback, by force, is not good. If you can recognize that I should able to buy a hamburger from any restaurant I want (and that that liberty is always good because the alternative is the use of force on someone who is going about their day in a peaceful manner), why is it so hard for you to understand that it is always good for me to have the choice to buy something from Canada? Or Germany? Or China? Or Iran?

Free trade by definition means voluntary exchange of goods and services free of coercion. But because you don't like the way some people spend their money, you gladly use force to make others buy things you want them to buy without regard to their desires or preference. Then you have the audacity to say that force is good.

It's repulsive.; 1/13/12, 11:12 PM
Anonymous said...: Not sure what happened to one of my comments, but anyway…

The first part of my original comment was to remind you that corporations are simply groups of individuals. The use of the word corporation blurs or completely hides that as is evident from your language. Taxes hurt consumers, the individuals who purchase products (which is everyone on the planet) and all those working together to form corporations. It's easy to spew envy and jealousy at a corporation because you've lost touch with the humanity of what a corporation is. You view collections of people, seemingly, with disgust and hate, as if these groups of people (which includes nearly everyone on the planet) are less than human. Guess what? If you have a job, you're part of a corporation. Use you the word corporation to distance yourself from humanity in order to spew the destructive non-sense that brings misery to real people, many of whom are struggling right now.

The second part of my original comment was to get you to understand that there are costs to taxation, which directly, and negatively, impact everyone, except for the greedy politicians who stand to gain enormously from this wealth appropriation.

to say consumers ultimately pay the Corporate tax is bullshit.

Since corporations only get their money from consumers, it's a tautology to say this. To call it bullshit only highlights your misunderstanding. But I assume you mesa something like: if taxes on A increase the cost per unit X by $t, then the price, $y, of X doesn't increase by $t, right? So what? The government still burdens people unnecessarily by $t/X, right? The entire cost must be burdened by someone. These burdens are born mostly by the consumer, seen in increased prices, which results in reduced consumption. This again is another cost. Those who could originally afford X now cannot due to higher prices. Additionally, the reduced consumption may result (but not always) in less revenue. If this is the case, workers will begin to lose their jobs. What do you have against all these people?

Its Bullshit argument, like "free trade is ALWAYS good" or "Immigration ALWAYS makes everyone richer"

I've all ready addressed why you're wrong about trade and that it really is always good. But as to people who say "immigration ALWAYS makes everyone richer", I'm calling bullshit. I bet you can't find anyone who makes such a statement. However, the liberty of free movement of peaceful (which represents almost all immigrants) IS always good, but I don't know too many people who say that it always makes us richer. On average is does, but not always. You've simply erected a straw man, but couldn't even muster the intellectual competence to knock it down. Ha! So lazy.; 1/13/12, 11:52 PM
Anonymous said...: Taxes are passed along to customers. Here is an example from the company I work for, a multinational big box with 2,000 stores in the U.S., plus more overseas.

Each store's performance is judged by sales, profit margin, NBT (Net profit Before Taxes), and after tax profits. We track these metrics daily, weekly, monthly, quarterly, and annually.

Now, hypothetically, let's say our store's goals for this year are: annual sales of $30 million, gross profit margin of 30 percent, and NBT goal of $9 million. Our after tax profit goal, with the existing federal tax rate, is $3 million.

Next year, the federal tax rate is increased.

The company now has a choice to make. Raise prices to maintain each store's after tax profit, i.e. pass the higher taxes onto the customer, or accept reduced profitability.

Since the company is in business to make a profit, and the corporate officers and directors have a fiduciary responsibility to maximize profits, then the cost of goods sold will most likely be increased to maintain profitability.

Competition will limit price increases to a certain extent, but our competitors are facing the same choice. Increase prices to maintain profitability, accept lower profits thus violating the fiduciary responsibility to the owners, or, start closing marginally profitable stores to lower costs and maintain the corporation's overall profit rate.

Keep in mind, though, that the difference between an acceptably profitable store (10 percent after tax profit) and a marginally profitable store (below 10 percent after tax profit) may be the amount of the tax increase.

If a store is making 10 percent after taxes but the tax increase lowers that to eight percent, then the store is in trouble.

If the market can not bear higher prices, and the store is already operating as efficiently as possible, then that store and its employees are history.

Shorter version: Taxes are a cost of doing business and that cost is paid for by the consumer because the cost of taxation is built into the pricing and profit formulas from day one. There is no other way to pay the taxes and pay the owners at the same time.; 1/14/12, 12:22 AM
Rusty said...: The reason free trade is always good is because the freedom to do what I want with my own body, capital, and property is good. In fact, that is the definition of free trade. Since this liberty is equivalent to free trade and that liberty is always good, free trade is good.

That should be etched on the wall,above the dry erase board, of every economics classroom in the country.; 1/14/12, 9:14 AM
Carnifex said...: Yeah!!! What those guys said!!; 1/14/12, 5:32 PM
Lord Whorfin said...: They should leave it overseas, unless they can make an investment big enough to cover the tax, then they will spend it.; 1/14/12, 6:15 PM