quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

No. Sigh. Again.....

Some goods are elastic. Some goods are inelastic. Many goods are somewhere in between.

How elastic that good is determines whether or how much of the cost will be passed on, because the goal is to maximize profit, not simply margin per unit.

I'm not "assuming" anything. I'm attempting illustrate a principle of which you are clearly clueless and don't want to know either. And it doesn't have to be a 50% drop. A 1% drop might do it -- or not -- depending on volume and margin and -- elasticity. It's honestly (not sarcastically) microeconomics 101. Not rocket science.

Another problem with your misunderstanding is that if producers could simply raise prices and make more profit, they'd already do it. They don't have to wait to pass on costs.

One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

You are only very partially correct. Few products are inelastic to pricing. Gas and food are essentially 99% inelastic. The strict technical definition of inelastic pricing has become the question of a product's demand rising when the price falls. There is no longer any question that as prices rise...demand falls but almost all cases, when retail prices go down, demand does not rise.

I won't eat more just because food is cheaper and I won't drive around the block more because gas is down. Gas is a tiny bit more elastic in that if it goes down enough, I might take the family on a drive or a driving vacation rather than not but represents a small change in over all demand.

When producers raise the price of food, prices rise except fresh foods that are subject to spoiling. When producers raise the price of gas, retailers wait as long as they can to see what the competition does and as soon as anyone raises prices...they all do.

As for retailers simply raising prices when they can...they already have and do so constantly when they feel they can. There are no economic laws preventing them except one that is in many markets, vanishing...competition.

Housing is another as just because they are cheaper doesn't mean I now need another house. Investors do come in but again, represent a very small segment of the market. Now the cost of money, i.e. low mortgage rates do spur demand but that's not because I need a second house, it is because more buyers qualify because demand is universal...everybody wants a house.

You are correct in that we discuss micro not macro...economics.

quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: subrosaDom

quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: freedomdwarf1

Very true.

But that assumes you're (potentially) losing 50% of sales - an argument I see all the time that doesn't usually happen in real life.
Unless the price hike is exorbitant and you suddenly become uncompetitive compared to your competition, chances are, your sales will drop by a very very small margin and probably less than 0.5%.
So it wouldn't always make sense to swallow the price increase.

In your (unrealistic) example, what most companies do in that situation, and knowing that psychologically the $1.01 price tag doesn't sell as well as things ending in $0.99 (stupid consumers usually only see the whole $$'s), they'd use a tactic like "$1.09 each or 2 for $2.09" making the consumers think they'll actually save money by buying 2 instead of one.
We see that a lot over here when fuel prices go up and chain stores start forecasting that product prices will rise as a result of the fuel hike. And strangely enough, it actually works and sales go up!!

No. Sigh. Again.....

Some goods are elastic. Some goods are inelastic. Many goods are somewhere in between.

How elastic that good is determines whether or how much of the cost will be passed on, because the goal is to maximize profit, not simply margin per unit.

I'm not "assuming" anything. I'm attempting illustrate a principle of which you are clearly clueless and don't want to know either. And it doesn't have to be a 50% drop. A 1% drop might do it -- or not -- depending on volume and margin and -- elasticity. It's honestly (not sarcastically) microeconomics 101. Not rocket science.

Another problem with your misunderstanding is that if producers could simply raise prices and make more profit, they'd already do it. They don't have to wait to pass on costs.

One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

You are only very partially correct. Few products are inelastic to pricing. Gas and food are essentially 99% inelastic. The strict technical definition of inelastic pricing has become the question of a product's demand rising when the price falls. There is no longer any question that as prices rise...demand falls but almost all cases, when retail prices go down, demand does not rise.

All true, insofar as microecon is concerned. There are also other factors that are psychological. For example, to use a reductio ad absurdum, if I sell a new Porsche 911 for $10K, demand will fall because no one will believe it's really a Porsche. Even if it is, I'd have to say it's a giveaway. So elasticity is one of many variables (a very important one) subject to a multiple regression analysis. Even at 1 cent, the old diet pills named Ayds weren't going to move. So everything MrRodgers says is true; it's not the only factor unless you're talking only economics. Of course, you address this point. But now, let's say look at a specialty market, say art. As prices rise, as long as there is a belief, even irrational, that prices will continue to rise (e.g., bubbles or even objective evidence), then demand may increase, not fall, because everyone wants to cash in on the future value.

Art is not a good example. Many of Warhol's paintings went for $100-$150,000 when he was alive. (most of them painted by $10/hr students) But when Warhol died, his Campbell Soup canvases for example took off as we've seen.

Two things happened. By dying, buyers (the market) knew there would be no more so it was...the end of supply. Theoretically, demand would fall if it was resold while it easily may have, demand didn't change or went down because fewer buyers had enough money but because any ensuing buyer would know...there won't be anymore. A group of canvases were eventually purchased for $15 million and for the rarity and elimination of supply. A recent Vegetable soup can with opener sold for $23.8 mill. with even less demand.

Thus a permanent reduction and in this case, a removal of supply means the price will do nothing but go up even though there will be fewer and fewer buyers with enough money to buy them.

quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: Musicmystery

It's not altruism -- it's basic microeconomics.

They pass on all costs they *can* ***if*** doing so increases net profit. And that depends on how elastic a good is.

Say you sell something for 99 cents, sell 100,000,000 of them a year, and your costs are 49 cents per unit. Net Profit: $50 million/year.

Now your costs go up 2 cents. But at $1.01, half your customers say "Fuck it." If you pass it on, your net profit is now $25 million/year.

So....you eat the 2 cents, and make a lousy $48 million/year.

Now, if your customers shrug, raise the prices. Or if they bitch but pay anyway. Or most of them -- it depends on how elastic that particular good is.

Microeconomics 101.

Wrong in so far as price elasticity. The only factors in determining elasticity is whether or not greater demand and thus greater sales result from lowering the price. If one lowers the price of a product and demand remains unchanged, then the price has shown to be inelastic.

No matter the price or the margin, of I make a profit or break even, then all of the costs associated with it including taxes...are covered.

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ORIGINAL: tj444

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ORIGINAL: Musicmystery

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ORIGINAL: tj444

So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????

My comment is tongue n cheek as I never considered Canada to be a low tax country..

That's because you keep electing a conservative prime minister.

Dude.. a Canadian Conservative Prime Minister is the equivalent of a US Liberal/Democrat President.. our "conservative" isn't like your "conservative".. since Canada is considered by ya'll as one of them there "socialist" countries..

quote:

ORIGINAL: Musicmystery
One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: tj444

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: tj444

So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????

My comment is tongue n cheek as I never considered Canada to be a low tax country..

That's because you keep electing a conservative prime minister.

Dude.. a Canadian Conservative Prime Minister is the equivalent of a US Liberal/Democrat President.. our "conservative" isn't like your "conservative".. since Canada is considered by ya'll as one of them there "socialist" countries..

Oh...dudette....I didn't realize Canadian corporate taxes fell all by themselves.

quote:

ORIGINAL: freedomdwarf1

quote:

ORIGINAL: Musicmystery
One example is gasoline prices. When prices are rising, station owners don't raise prices as fast as wholesale prices, because they're worried about losing business. And...ironically, they suffer when prices rise. Conversely, when gasoline falls, they are very slow to match the falling prices, to make up their lost margins again.

Maybe the behaviour of retail outlets are different over here.

To take your example of gasoline prices, when Grangemouth refinery workers and tanker drivers announced they were considering taking strike action and were going to the ballot boxes within the following weeks, our fuel prices went up immediately - in many places, within an hour of the announcement of possible strike action.
Station owners didn't wait for the wholesale price to go up and they didn't even wait until the ballot results proved positive of strike action; they acted instantly and raised fuel prices at the pump by as much as 10%.

quote:

ORIGINAL: freedomdwarf1

quote:

ORIGINAL: mnottertail

The firm has offices in NYC and Rio De Janiro.

50% foreign, 50% tax raise from maximum US tax rate.

BK have something like 11 million outlets.
I'd hazard a guess that they've got offices in just about every country they operate in just like McD's and coca-cola have.

That said, I believe there's a collective move (certainly by the Europeans) to close those sort of tax loopholes so that multi-national corporations pay their fair share of taxes no matter where they try and hide the profits.
Google, Amazon, all the big fast-food chains etc are facing some tough tax legislation over here.
Maybe the rest of the 1st-world nations should follow up??

Though to be honest, as you rightly pointed out, whatever we tax them at they'll only pass that cost down to the consumer.

quote:

ORIGINAL: DesideriScuri

quote:

ORIGINAL: Zonie63

quote:

ORIGINAL: tj444
So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????
http://www.businessinsider.com/burger-king-shares-are-surging-2014-8
and then there is this..
"According to a recent KPMG study, Canada is one of the most business-friendly countries in the world. At least, when you look at the total tax cost for companies operating in some of the world's biggest economies.
This table from KPMG shows the corporate tax rate in Canada is 26.5%, which compares with 40% for the U.S."
http://finance.yahoo.com/news/canada-most-business-friendly-tax-125946388.html
My comment is tongue n cheek as I never considered Canada to be a low tax country..

Yes, and reading that table comparing the different tax rates was rather interesting. Sweden's rate of 22% was even lower, as well as a number of other European countries which have lower rates than that of the United States (including France and the UK). However, there's also a table on individual tax rates.
According to the tables, the Canadian corporate tax rate was 36.1% in 2006, while ours was at 40% constant from 2006-14. (It doesn't appear that politics or which party was in power had any effect on this rate.) The Canadian rate has come down to where it's now at 26.5%. If they're looking for a real bargain in taxes, they should set up their headquarters in Bosnia or Paraguay, where the rate is only 10%. Russia's rate is 20% and China's is 25%.
I don't suppose this means that Burger King will be passing on this savings to their customers.

An investment consultant on the local drive-time radio show commented on this today. The tax improvement wasn't the only reason for the inversion, else those other countries would have made a better choice, as you stated. The merger would make BK the 3rd largest fast food chain in the world, would open up possibilities for cross-marketing, cross-promotions, and Tim Hortons is already in grocery stores, giving BK a potential "foot in the door" to growing that segment.

While the 13.5% tax change is certainly desirable, it wasn't the only reason behind the potential acquisition.

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ORIGINAL: MrRodgers

quote:

ORIGINAL: KYsissy

I have heard there is over $2 trillion in US corporate money overseas due to the tax issue. As it stands, it is cheaper.to borrow money as opposed to repatriating those funds. It is strictly.a business decision. Some like to label it as a loophole, but it is tax law. By the same logic, my mortgage interest deduction could be called a loophole. Think of what $2 trillion flooding into this country could do. Upgrades to exisiting facilities, delayed equipment purchases finally greenlighted, IT systems upgraded. The fallout through the economy could be huge.
Some like to paint this as evil corporations but to me it is more like me, passing the gas station selling gas @ $3.50 and stopping at the one selling it @ $3.39.

If it was up to me, I would rather have 20% of $2 trillion than 40% of nothing.

The home mortgage interest deduction is not and never has been a...'tax loophole.'

During the pre-WW1 period, there was very little interest expenses paid by individuals. Home owners typically owned their houses outright (except for farmers, who either financed or leased the land). There were no credit cards, HELOCs, (home equity line of credit) revolving credit, or student loans.

The deduction on interest was never intended to be a salve to the middle class. It was not designed to encourage home ownership. Indeed, when the interest rate deduction was first considered, home financing was (almost) non-existent, and home ownership was not thought of as a public policy. It is not part of any grand scheme of social engineering, as some have called it. It simply has existed since the Federal Income tax came about a century ago.

Indeed, the entire home mortgage deduction is little more than a historical anachronism, a carry over from when all interest payments were deductible.

The difference in the mortgage interest deductions today is that it is accounted for in the price of housing and at least a portion of why we see houses 30 or 40 times their original sales price and we see FHA and VA mortgage benefits rise unconsciously.

OH and BTW, they the corporation knows you will take the 20% of something over 40% of nothing but the who use of corporate accounting is to arrange for the $2 trillion (which BTW is $28-$32 trillion in cumulative untaxed offshore US corporate profits) to be 'offshore.' How you ask ?

SO Apple designs a product here, some of the parts are made here, some made in China and then assembled in China. The finished product is then sold in say NY, but the profits were...made in Ireland. Nothing else at all occurred in Ireland for that product but the profits were made there.

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ORIGINAL: tj444

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ORIGINAL: Musicmystery

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ORIGINAL: tj444

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: tj444

So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????

My comment is tongue n cheek as I never considered Canada to be a low tax country..

That's because you keep electing a conservative prime minister.

Dude.. a Canadian Conservative Prime Minister is the equivalent of a US Liberal/Democrat President.. our "conservative" isn't like your "conservative".. since Canada is considered by ya'll as one of them there "socialist" countries..

Oh...dudette....I didn't realize Canadian corporate taxes fell all by themselves.

WTF does the Prime Minister being a "conservative" have to do with anything? All countries can change their tax laws when they decide its beneficial to their country to do so (just as the US can).. just as Puerto Rico did recently in giving corporations and people major tax breaks to 2030 for moving and living there.. those tax breaks in PR are the best in the world and the only escape from the IRS that Americans can ever get (short of giving up their US citizenship)..

quote:

ORIGINAL: KYsissy
Is it a loophole or simply tax law? Depends who you ask. Some are calling loopholes what corporate accountants call tax law.

• A Conservative interpretation of the US Constitution
  
• Personal Responsibility
  
• Help for the truly needy
  
• Limited Government
  
• Consumption Tax (non-profit charities and food exempt)
  

quote:

ORIGINAL: tj444

So Burger King is doing a tax inversion to escape high US taxes.. its buying Tim Hortons.. and moving to the "tax haven" known as.. umm.. Canada.. whodathunkit????

http://www.businessinsider.com/burger-king-shares-are-surging-2014-8

and then there is this..
"According to a recent KPMG study, Canada is one of the most business-friendly countries in the world. At least, when you look at the total tax cost for companies operating in some of the world's biggest economies.
This table from KPMG shows the corporate tax rate in Canada is 26.5%, which compares with 40% for the U.S."

http://finance.yahoo.com/news/canada-most-business-friendly-tax-125946388.html

My comment is tongue n cheek as I never considered Canada to be a low tax country..

quote:

ORIGINAL: Musicmystery

quote:

ORIGINAL: MrRodgers

quote:

ORIGINAL: Musicmystery

It's not altruism -- it's basic microeconomics.

They pass on all costs they *can* ***if*** doing so increases net profit. And that depends on how elastic a good is.

Say you sell something for 99 cents, sell 100,000,000 of them a year, and your costs are 49 cents per unit. Net Profit: $50 million/year.

Now your costs go up 2 cents. But at $1.01, half your customers say "Fuck it." If you pass it on, your net profit is now $25 million/year.

So....you eat the 2 cents, and make a lousy $48 million/year.

Now, if your customers shrug, raise the prices. Or if they bitch but pay anyway. Or most of them -- it depends on how elastic that particular good is.

Microeconomics 101.

Wrong in so far as price elasticity. The only factors in determining elasticity is whether or not greater demand and thus greater sales result from lowering the price. If one lowers the price of a product and demand remains unchanged, then the price has shown to be inelastic.

No matter the price or the margin, of I make a profit or break even, then all of the costs associated with it including taxes...are covered.

You're a moron. Elasticity is the slope of the demand curve.

Nothing you've said here counters what I've explained.

quote:

ORIGINAL: Zonie63

quote:

ORIGINAL: freedomdwarf1

quote:

ORIGINAL: mnottertail

The firm has offices in NYC and Rio De Janiro.

50% foreign, 50% tax raise from maximum US tax rate.

BK have something like 11 million outlets.
I'd hazard a guess that they've got offices in just about every country they operate in just like McD's and coca-cola have.

That said, I believe there's a collective move (certainly by the Europeans) to close those sort of tax loopholes so that multi-national corporations pay their fair share of taxes no matter where they try and hide the profits.
Google, Amazon, all the big fast-food chains etc are facing some tough tax legislation over here.
Maybe the rest of the 1st-world nations should follow up??

Though to be honest, as you rightly pointed out, whatever we tax them at they'll only pass that cost down to the consumer.

Yes, but if we increase taxes on them to the point where it costs consumers $20 for a Whopper, then Burger King will eventually go out of business, and they'll learn a harsh lesson about what happens to those who "invert." The idea should be to set it up so that businesses will lose far more than whatever they might have gained in lower taxes.