Total Posts:28|Showing Posts:1-28
Jump to topic:

Tax Question

tabularasa
Posts: 200
Add as Friend
Challenge to a Debate
Send a Message
3/15/2015 5:36:36 PM
Posted: 1 year ago
I am not an economist. I wanted input from someone more knowledgeable than myself. My father told me today that he would like to know why income tax and tax on businesses is not completely eliminated and sales tax increased in proportion to the amount of income tax and business tax eliminated.

My thoughts are that more people will start businesses, and that spending will decrease. If spending decreases, businesses will become less profitable. Businesses will then decrease the cost of goods. In the short term, there will be a decrease in sales of higher priced items/luxury items. Maybe in the long term sales of high priced items/luxury items will adjust. I don't know. If sales decrease as a result of higher sales taxes proportional to the decrease in income/tax on businesses, the resulting lack of income for business owners/employees will contribute to a decrease in spending.

Where am I wrong and what am I missing?
1. I already googled it.

2. Give me an argument. Spell it out. "You're wrong," is not an argument.
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/16/2015 1:12:48 AM
Posted: 1 year ago
At 3/15/2015 5:36:36 PM, tabularasa wrote:
My thoughts are that more people will start businesses, and that spending will decrease. If spending decreases, businesses will become less profitable. Businesses will then decrease the cost of goods. In the short term, there will be a decrease in sales of higher priced items/luxury items. Maybe in the long term sales of high priced items/luxury items will adjust. I don't know. If sales decrease as a result of higher sales taxes proportional to the decrease in income/tax on businesses, the resulting lack of income for business owners/employees will contribute to a decrease in spending.
My head has gone dizzy, but let me try to explain in easy terms.


Where am I wrong and what am I missing?
I am not an economist. I wanted input from someone more knowledgeable than myself. My father told me today that he would like to know why income tax and tax on businesses is not completely eliminated and sales tax increased in proportion to the amount of income tax and business tax eliminated.
Sales tax is indirect tax, that means every one has to pay it irrespective of their income rank (a criticized factor). But total elimination of income tax would be entirely negative to tax theory where wealthy people should contribute more to the tax revenue because they're getting more benefit from the society and consumer.

Hope this is what you asked. But if your point was something else, please let me know.
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
tabularasa
Posts: 200
Add as Friend
Challenge to a Debate
Send a Message
3/16/2015 10:52:47 AM
Posted: 1 year ago
At 3/16/2015 1:12:48 AM, Dazz wrote:
At 3/15/2015 5:36:36 PM, tabularasa wrote:
My thoughts are that more people will start businesses, and that spending will decrease. If spending decreases, businesses will become less profitable. Businesses will then decrease the cost of goods. In the short term, there will be a decrease in sales of higher priced items/luxury items. Maybe in the long term sales of high priced items/luxury items will adjust. I don't know. If sales decrease as a result of higher sales taxes proportional to the decrease in income/tax on businesses, the resulting lack of income for business owners/employees will contribute to a decrease in spending.
My head has gone dizzy, but let me try to explain in easy terms.


Where am I wrong and what am I missing?
I am not an economist. I wanted input from someone more knowledgeable than myself. My father told me today that he would like to know why income tax and tax on businesses is not completely eliminated and sales tax increased in proportion to the amount of income tax and business tax eliminated.
Sales tax is indirect tax, that means every one has to pay it irrespective of their income rank (a criticized factor). But total elimination of income tax would be entirely negative to tax theory where wealthy people should contribute more to the tax revenue because they're getting more benefit from the society and consumer.

Hope this is what you asked. But if your point was something else, please let me know.

Haha...this is to the point of what I asked. I am trying to learn tax analysis, since I am a law student. It is a very important part of Constitutional Law and Tax Law. I guess what I am looking for is analysis of what such a tax will do to the economy. I know this is an inexact science. Maybe if you could grade my analysis and tell me if my conclusion is correct/incorrect?

1. No income tax, no tax on businesses.
a. Result: more people start businesses.
2. Amount of tax negated from income and businesses shifts to consumers in the form of sales tax.
a. Result: Less spending in the short term. Reason: Business owners and employees will not reap the profits from sales because sales will be decreased as a result of increased sales tax.
3. As a result of decreased sales, businesses will lower prices in the short term to increase sales.
a. More consumers will spend money.
4. As sales increase, prices will adjust according to unknown changes in markets.

My conclusion is that sales will decrease in the short term leading to decreased prices for goods. More people will start businesses but businesses will suffer for lack of sales until retail and wholesale prices (inclding the sales tax) adjust to what consumers can afford. I do not know what will happen to retail/wholesale prices in the long term.

What do you think?

Are each of my numbered conclusions correct?

What is your analysis?
1. I already googled it.

2. Give me an argument. Spell it out. "You're wrong," is not an argument.
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
3/16/2015 11:03:55 AM
Posted: 1 year ago
At 3/15/2015 5:36:36 PM, tabularasa wrote:
I am not an economist. I wanted input from someone more knowledgeable than myself. My father told me today that he would like to know why income tax and tax on businesses is not completely eliminated and sales tax increased in proportion to the amount of income tax and business tax eliminated.

I actually complete agree with his proposal, though there are a lot of political constraints. For instance, we'd need to abolish the 16th amendment lest we have both a sales and an income tax levied simultaneously, which I think hardly anyone would find desirable.

My thoughts are that more people will start businesses, and that spending will decrease.

It depends on what you mean by "spending." Consumption may tend to decrease and savings will tend to increase but overall aggregate demand won't tend to fall because savings are funneled through financial markets and turned into investment. Further, without an income tax, we would expect labor supply to increase, and thus business investment to increase--or, even, if more people are employed, we could expect aggregate consumption to increase.

If spending decreases, businesses will become less profitable. Businesses will then decrease the cost of goods. In the short term, there will be a decrease in sales of higher priced items/luxury items. Maybe in the long term sales of high priced items/luxury items will adjust. I don't know.

This is fair, and I think your parsing of short term and long term is on the mark. In the short term, obviously prices and wages are sticky, so a decline in demand would tend to induce layoffs and lower profits, but over the long term, prices and wages tend to come down, costs tend to fall, etc. But, again, I'm not entirely convinced that overall demand would actually fall with a sales tax.

If sales decrease as a result of higher sales taxes proportional to the decrease in income/tax on businesses, the resulting lack of income for business owners/employees will contribute to a decrease in spending.

That is true. A classic case of that would be Japan's recent sales tax, though that was amid a horrid economy, terrible existing tax regime, and overly tight monetary policy.

Where am I wrong and what am I missing?

I think you got most of it right, though I tend to disagree on what the overall impact of the tax would be, assuming an optimal tax regime and somewhat reasonable monetary policy.
~ResponsiblyIrresponsible

DDO's Economics Messiah
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/16/2015 11:58:08 AM
Posted: 1 year ago
At 3/16/2015 10:52:47 AM, tabularasa wrote:

Haha...this is to the point of what I asked. I am trying to learn tax analysis, since I am a law student. It is a very important part of Constitutional Law and Tax Law. I guess what I am looking for is analysis of what such a tax will do to the economy. I know this is an inexact science. Maybe if you could grade my analysis and tell me if my conclusion is correct/incorrect?

1. No income tax, no tax on businesses.
a. Result: more people start businesses.
Yes. That is a key to invite Foreign Investments too.
2. Amount of tax negated from income and businesses shifts to consumers in the form of sales tax.
Not necessarily. But let's assume it's the case.....
a. Result: Less spending in the short term. Reason: Business owners and employees will not reap the profits from sales because sales will be decreased as a result of increased sales tax.
Alright. Price-Demand theory. Higher price->lower demand= Decreased Sales.
3. As a result of decreased sales, businesses will lower prices in the short term to increase sales.
Yes. Most businesses do this to keep their customer loyalty. They bear the tax burden by offsetting it with lowered original price (then adding Tax gives same old price).
a. More consumers will spend money.
4. As sales increase, prices will adjust according to unknown changes in markets.
Umm... Lowered price settled/offered by a couple of market players, would cause the demand to increase and supply would decrease (most business shut downs or production cuts). This would be movement along the curve. But in long run to meet the demand excessive, supply would increase again. Moving towards the equilibrium.

My conclusion is that sales will decrease in the short term leading to decreased prices for goods. More people will start businesses but businesses will suffer for lack of sales until retail and wholesale prices (inclding the sales tax) adjust to what consumers can afford. I do not know what will happen to retail/wholesale prices in the long term.
Yes if sales tax increases, in short term business would adversely affected. That's okay but in long run curves can take a shift.

Like if the businesses are failed to offset the whole affect of sales tax increment by lowering their product price, then demand curve can have a left shift (decreased quantity demanded at whatever price). Once demand curve shifts left, new equilibrium would be at lowered price, thus supply would tend to decrease drastically, resulting in supply curve shift upward (decreased supply at whatever price).

But as business has no income tax, supply curve is less likely to shift (upward) easily. It depends upon, in what proportion the taxes are imposed and levied on both sides. The net effect can explain it better I guess.

That is just my opinion. This must have been discussed in tax theories. You better to consult some literature on it, also.
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
tabularasa
Posts: 200
Add as Friend
Challenge to a Debate
Send a Message
3/17/2015 10:54:29 PM
Posted: 1 year ago
At 3/16/2015 11:03:55 AM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:36:36 PM, tabularasa wrote:
I am not an economist. I wanted input from someone more knowledgeable than myself. My father told me today that he would like to know why income tax and tax on businesses is not completely eliminated and sales tax increased in proportion to the amount of income tax and business tax eliminated.

I actually complete agree with his proposal, though there are a lot of political constraints. For instance, we'd need to abolish the 16th amendment lest we have both a sales and an income tax levied simultaneously, which I think hardly anyone would find desirable.

My thoughts are that more people will start businesses, and that spending will decrease.

It depends on what you mean by "spending." Consumption may tend to decrease and savings will tend to increase but overall aggregate demand won't tend to fall because savings are funneled through financial markets and turned into investment. Further, without an income tax, we would expect labor supply to increase, and thus business investment to increase--or, even, if more people are employed, we could expect aggregate consumption to increase.

If spending decreases, businesses will become less profitable. Businesses will then decrease the cost of goods. In the short term, there will be a decrease in sales of higher priced items/luxury items. Maybe in the long term sales of high priced items/luxury items will adjust. I don't know.

This is fair, and I think your parsing of short term and long term is on the mark. In the short term, obviously prices and wages are sticky, so a decline in demand would tend to induce layoffs and lower profits, but over the long term, prices and wages tend to come down, costs tend to fall, etc. But, again, I'm not entirely convinced that overall demand would actually fall with a sales tax.

If sales decrease as a result of higher sales taxes proportional to the decrease in income/tax on businesses, the resulting lack of income for business owners/employees will contribute to a decrease in spending.

That is true. A classic case of that would be Japan's recent sales tax, though that was amid a horrid economy, terrible existing tax regime, and overly tight monetary policy.

Where am I wrong and what am I missing?

I think you got most of it right, though I tend to disagree on what the overall impact of the tax would be, assuming an optimal tax regime and somewhat reasonable monetary policy.

Thank you for the fair and honest answer.
1. I already googled it.

2. Give me an argument. Spell it out. "You're wrong," is not an argument.
tabularasa
Posts: 200
Add as Friend
Challenge to a Debate
Send a Message
3/17/2015 10:55:01 PM
Posted: 1 year ago
At 3/16/2015 11:58:08 AM, Dazz wrote:
At 3/16/2015 10:52:47 AM, tabularasa wrote:

Haha...this is to the point of what I asked. I am trying to learn tax analysis, since I am a law student. It is a very important part of Constitutional Law and Tax Law. I guess what I am looking for is analysis of what such a tax will do to the economy. I know this is an inexact science. Maybe if you could grade my analysis and tell me if my conclusion is correct/incorrect?

1. No income tax, no tax on businesses.
a. Result: more people start businesses.
Yes. That is a key to invite Foreign Investments too.
2. Amount of tax negated from income and businesses shifts to consumers in the form of sales tax.
Not necessarily. But let's assume it's the case.....
a. Result: Less spending in the short term. Reason: Business owners and employees will not reap the profits from sales because sales will be decreased as a result of increased sales tax.
Alright. Price-Demand theory. Higher price->lower demand= Decreased Sales.
3. As a result of decreased sales, businesses will lower prices in the short term to increase sales.
Yes. Most businesses do this to keep their customer loyalty. They bear the tax burden by offsetting it with lowered original price (then adding Tax gives same old price).
a. More consumers will spend money.
4. As sales increase, prices will adjust according to unknown changes in markets.
Umm... Lowered price settled/offered by a couple of market players, would cause the demand to increase and supply would decrease (most business shut downs or production cuts). This would be movement along the curve. But in long run to meet the demand excessive, supply would increase again. Moving towards the equilibrium.


My conclusion is that sales will decrease in the short term leading to decreased prices for goods. More people will start businesses but businesses will suffer for lack of sales until retail and wholesale prices (inclding the sales tax) adjust to what consumers can afford. I do not know what will happen to retail/wholesale prices in the long term.
Yes if sales tax increases, in short term business would adversely affected. That's okay but in long run curves can take a shift.

Like if the businesses are failed to offset the whole affect of sales tax increment by lowering their product price, then demand curve can have a left shift (decreased quantity demanded at whatever price). Once demand curve shifts left, new equilibrium would be at lowered price, thus supply would tend to decrease drastically, resulting in supply curve shift upward (decreased supply at whatever price).

But as business has no income tax, supply curve is less likely to shift (upward) easily. It depends upon, in what proportion the taxes are imposed and levied on both sides. The net effect can explain it better I guess.

That is just my opinion. This must have been discussed in tax theories. You better to consult some literature on it, also.

Thank you for the fair and honest answer.
1. I already googled it.

2. Give me an argument. Spell it out. "You're wrong," is not an argument.
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/18/2015 3:58:03 AM
Posted: 1 year ago
At 3/17/2015 10:55:01 PM, tabularasa wrote:

Thank you for the fair and honest answer.

Welcome :)
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/18/2015 5:08:04 AM
Posted: 1 year ago
At 3/16/2015 1:12:48 AM, Dazz wrote:
At 3/15/2015 5:36:36 PM, tabularasa wrote:
My thoughts are that more people will start businesses, and that spending will decrease. If spending decreases, businesses will become less profitable. Businesses will then decrease the cost of goods. In the short term, there will be a decrease in sales of higher priced items/luxury items. Maybe in the long term sales of high priced items/luxury items will adjust. I don't know. If sales decrease as a result of higher sales taxes proportional to the decrease in income/tax on businesses, the resulting lack of income for business owners/employees will contribute to a decrease in spending.
My head has gone dizzy, but let me try to explain in easy terms.


Where am I wrong and what am I missing?
I am not an economist. I wanted input from someone more knowledgeable than myself. My father told me today that he would like to know why income tax and tax on businesses is not completely eliminated and sales tax increased in proportion to the amount of income tax and business tax eliminated.
Sales tax is indirect tax, that means every one has to pay it irrespective of their income rank (a criticized factor). But total elimination of income tax would be entirely negative to tax theory where wealthy people should contribute more to the tax revenue because they're getting more benefit from the society and consumer.

Hope this is what you asked. But if your point was something else, please let me know.

I don't know if you're simplifying things to someone not knowledgeable about economics (I saw you wrote Higher price->lower demand), but an indirect tax is defined as a tax that can be shifted to another party. Sales tax is an indirect tax because the burden is partially on the seller and partially on the buyer, and the proportion of the share of each party depends on the elasticity of demand.

A per-unit sales tax will shift the supply curve upwards/leftwards, i.e. leading to a decrease in supply. The consumer's tax burden is the new quantity transacted times the difference between the old and new prices; subtract that from the total tax revenue and you get the seller's tax burden.

I don't completely understand the OP TBH, but to keep it simple:

- abolishing salaries tax -> increase in disposable income -> consumption increases
- abolishing profits tax -> increase in investment incentive -> investment increases
-> Conclusion: AD increases

- increasing sales tax -> negative cost shock -> SRAS drops
- abolishing salaries tax -> higher working incentive -> labour productivity rises
-> Conclusion: SRAS rises or drops

Thus in the short run, the general price level must rise but the effect on real output is uncertain.

If the SRAS dropped so much as to create a deflationary gap in the short run, it will rise in the long run to decrease prices, but, assuming there isn't a drop in LRAS (?), I don't see how it would cause prices to drop below original level or even return to it?

I'd like to be corrected if I'm wrong. ^^

---
I'd think most people would oppose your proposal because sales tax is regressive though... That would lead to greater inequality, more protests, etc.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/18/2015 5:12:57 AM
Posted: 1 year ago
At 3/18/2015 5:08:04 AM, Diqiucun_Cunmin wrote:

If the SRAS dropped so much as to create a deflationary gap in the short run, it will rise in the long run to decrease prices, but, assuming there isn't a rise in LRAS (?), I don't see how it would cause prices to drop below original level or even return to it?
correcting myself
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/18/2015 5:39:07 AM
Posted: 1 year ago
Also, from a micro perspective: since income tax is abolished, the demand for inferior goods will drop and the demand for normal goods will rise. The increase in sales tax will lead to a drop in supply for everything. The effect on the prices of inferior goods and the quantity of normal goods in uncertain, but the prices of normal goods will rise for sure, and the quantities of inferior goods will drop for certain. Do you agree with that?
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
tabularasa
Posts: 200
Add as Friend
Challenge to a Debate
Send a Message
3/18/2015 8:07:10 PM
Posted: 1 year ago
At 3/18/2015 5:39:07 AM, Diqiucun_Cunmin wrote:
Also, from a micro perspective: since income tax is abolished, the demand for inferior goods will drop and the demand for normal goods will rise. The increase in sales tax will lead to a drop in supply for everything. The effect on the prices of inferior goods and the quantity of normal goods in uncertain, but the prices of normal goods will rise for sure, and the quantities of inferior goods will drop for certain. Do you agree with that?

Wait, wait...please explain the demand for inferior goods will drop and the demand for normal goods will rise. Pretend that I am a total idiot (I actually am) while explaining.

As I understand it the increase in sales tax will cause the demand for superior and normal goods to drop, and the demand for inferior goods to rise. Please explain why I am wrong.

Thanks,

Blank Tablet
1. I already googled it.

2. Give me an argument. Spell it out. "You're wrong," is not an argument.
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/18/2015 8:33:54 PM
Posted: 1 year ago
At 3/18/2015 8:07:10 PM, tabularasa wrote:
At 3/18/2015 5:39:07 AM, Diqiucun_Cunmin wrote:
Also, from a micro perspective: since income tax is abolished, the demand for inferior goods will drop and the demand for normal goods will rise. The increase in sales tax will lead to a drop in supply for everything. The effect on the prices of inferior goods and the quantity of normal goods in uncertain, but the prices of normal goods will rise for sure, and the quantities of inferior goods will drop for certain. Do you agree with that?

Wait, wait...please explain the demand for inferior goods will drop and the demand for normal goods will rise. Pretend that I am a total idiot (I actually am) while explaining.

As I understand it the increase in sales tax will cause the demand for superior and normal goods to drop, and the demand for inferior goods to rise. Please explain why I am wrong.

Thanks,

Blank Tablet

Here's my reasoning:

Sales tax doesn't affect demand at all actually. It only decreases supply and thus decreases quantity demanded.

The abolition of income tax increases the demand for normal goods and decreases the demand for inferior goods.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/19/2015 8:57:04 AM
Posted: 1 year ago
At 3/18/2015 8:33:54 PM, Diqiucun_Cunmin wrote:

Here's my reasoning:

Sales tax doesn't affect demand at all actually.
Sales tax should naturally decrease the both; demand and supply (keeping other things constant). Because consumer goods' prices have risen (resulting in decreased demand), and supplier profit is also less now (decrease in supply). This would cause a shift in both curves. (depending upon product elasticity)
It only decreases supply and thus decreases quantity demanded.
Couldn't catch the relevance of decreased supply to decreased demand in theoretical terms. However the above explanation prevails.

The abolition of income tax increases the demand for normal goods and decreases the demand for inferior goods.
May be you're mixing the two; companies' income tax and employees' salary (income) tax. Question was about business income tax abolition. Anyhow if your point is that the saving (through salary tax cut) would increase the consumption and thus the demand, then you're right.
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/19/2015 11:12:12 AM
Posted: 1 year ago
At 3/19/2015 8:57:04 AM, Dazz wrote:
At 3/18/2015 8:33:54 PM, Diqiucun_Cunmin wrote:

Here's my reasoning:

Sales tax doesn't affect demand at all actually.
Sales tax should naturally decrease the both; demand and supply (keeping other things constant). Because consumer goods' prices have risen (resulting in decreased demand), and supplier profit is also less now (decrease in supply). This would cause a shift in both curves. (depending upon product elasticity)

What is the logic in this? How would a rise in price lead to a drop in demand, unless I'm missing something?

Also, the change in supplier profit should, according to my understanding of a sales tax, decrease only under the condition that demand elasticity >1. If it is unitary, there will be no change in supplier profit. If demand is inelastic, they'll end up earning more.

I really don't understand what you're talking about... Could you draw your supply-demand diagram here?

It only decreases supply and thus decreases quantity demanded.
Couldn't catch the relevance of decreased supply to decreased demand in theoretical terms. However the above explanation prevails.
I said decrease in quantity demanded, not demand. ;)

The abolition of income tax increases the demand for normal goods and decreases the demand for inferior goods.
May be you're mixing the two; companies' income tax and employees' salary (income) tax. Question was about business income tax abolition. Anyhow if your point is that the saving (through salary tax cut) would increase the consumption and thus the demand, then you're right.

Apologies. I've somehow always assumed income tax is an umbrella term for personal and business tax. No wonder why I couldn't wrap my head around the OP.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/19/2015 12:24:16 PM
Posted: 1 year ago
At 3/19/2015 11:12:12 AM, Diqiucun_Cunmin wrote:

Also, the change in supplier profit should, according to my understanding of a sales tax, decrease only under the condition that demand elasticity >1. If it is unitary, there will be no change in supplier profit. If demand is inelastic, they'll end up earning more.
Reread my comment and saw my error. That should have been aimed at revenue, not profit.

Ignoring fixed costs, the profit = producer surplus though, and I'm fairly sure the effect on producer surplus is uncertain here?
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/19/2015 1:50:59 PM
Posted: 1 year ago
At 3/19/2015 11:12:12 AM, Diqiucun_Cunmin wrote:
At 3/19/2015 8:57:04 AM, Dazz wrote:
At 3/18/2015 8:33:54 PM, Diqiucun_Cunmin wrote:

Here's my reasoning:

Sales tax doesn't affect demand at all actually.
Sales tax should naturally decrease the both; demand and supply (keeping other things constant). Because consumer goods' prices have risen (resulting in decreased demand), and supplier profit is also less now (decrease in supply). This would cause a shift in both curves. (depending upon product elasticity)

What is the logic in this? How would a rise in price lead to a drop in demand, unless I'm missing something?
Logic? It's how the demand curve moves along price variations. Higher the price; lower the demand, lower the price; higher the demand (Demand Theory).

Also when you talk about demand elasticity>1, that means you're talking about the same logic that implies to its sensitivity against price change. And price&demand are inversely proportional to each other, logically.

Also, the change in supplier profit should, according to my understanding of a sales tax, decrease only under the condition that demand elasticity >1. If it is unitary, there will be no change in supplier profit. If demand is inelastic, they'll end up earning more.
Here the decrease in profit/revenue is in 2 terms.
1. In the term of Quantity sold (that depends upon demand)
2. In term of per unit profit (that would decrease if tax burden is shared by seller)

Point 1 would be nullified if demand is inelastic, that means product has a constant demand/ quantity demanded. This is what you've also stated above. And that's why I also stated "depending upon product (price) elasticity"

[See here you inherently assumed the logic that increase in price (due to tax burden on consumer) would decrease the the demand if it'd be elastic, so elasticity is condition for the demand-theory, in absence of elasticity, demand is insensitive to price change]

I really don't understand what you're talking about... Could you draw your supply-demand diagram here?
Diagram? How to share that? Google search is a good choice.
But I'd say, supply curve is directly proportional to price (upward + slope), whereas demand curve has inverse relation (downward - slope). Price is taken as independent variable drawn on y-axis. S&D are dependent here but drawn on X-axis (that is quantity demanded/supplied).

It only decreases supply and thus decreases quantity demanded.
Couldn't catch the relevance of decreased supply to decreased demand in theoretical terms. However the above explanation prevails.
I said decrease in quantity demanded, not demand. ;)
I don't know how quantity demanded and demand can be different? I consider them akin. And actually they're. (What can be the other?)


The abolition of income tax increases the demand for normal goods and decreases the demand for inferior goods.
May be you're mixing the two; companies' income tax and employees' salary (income) tax. Question was about business income tax abolition. Anyhow if your point is that the saving (through salary tax cut) would increase the consumption and thus the demand, then you're right.

Apologies. I've somehow always assumed income tax is an umbrella term for personal and business tax. No wonder why I couldn't wrap my head around the OP.
It's okay :)
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/20/2015 5:17:31 AM
Posted: 1 year ago
At 3/19/2015 1:50:59 PM, Dazz wrote:
At 3/19/2015 11:12:12 AM, Diqiucun_Cunmin wrote:
At 3/19/2015 8:57:04 AM, Dazz wrote:
At 3/18/2015 8:33:54 PM, Diqiucun_Cunmin wrote:

Here's my reasoning:

Sales tax doesn't affect demand at all actually.
Sales tax should naturally decrease the both; demand and supply (keeping other things constant). Because consumer goods' prices have risen (resulting in decreased demand), and supplier profit is also less now (decrease in supply). This would cause a shift in both curves. (depending upon product elasticity)

What is the logic in this? How would a rise in price lead to a drop in demand, unless I'm missing something?
Logic? It's how the demand curve moves along price variations. Higher the price; lower the demand, lower the price; higher the demand (Demand Theory).
No? The law of demand states that price and quantity demanded are inversely related, ceteris paribus.

Also when you talk about demand elasticity>1, that means you're talking about the same logic that implies to its sensitivity against price change. And price&demand are inversely proportional to each other, logically.

Also, the change in supplier profit should, according to my understanding of a sales tax, decrease only under the condition that demand elasticity >1. If it is unitary, there will be no change in supplier profit. If demand is inelastic, they'll end up earning more.
Here the decrease in profit/revenue is in 2 terms.
1. In the term of Quantity sold (that depends upon demand)
2. In term of per unit profit (that would decrease if tax burden is shared by seller)

Point 1 would be nullified if demand is inelastic, that means product has a constant demand/ quantity demanded. This is what you've also stated above. And that's why I also stated "depending upon product (price) elasticity"

[See here you inherently assumed the logic that increase in price (due to tax burden on consumer) would decrease the the demand if it'd be elastic, so elasticity is condition for the demand-theory, in absence of elasticity, demand is insensitive to price change]
Actually, please ignore everything I said about elasticity. It's the result of my not having seriously studied econ for more than a month. I can lose things surprisingly easily. I just realised how idiotic it was - I completely forgot about the tax burden. *blushes*
I really don't understand what you're talking about... Could you draw your supply-demand diagram here?
Diagram? How to share that? Google search is a good choice.
But I'd say, supply curve is directly proportional to price (upward + slope), whereas demand curve has inverse relation (downward - slope). Price is taken as independent variable drawn on y-axis. S&D are dependent here but drawn on X-axis (that is quantity demanded/supplied).
I asked because we don't seem to have the same diagram in mind. You said something about shifting the demand curve, but I don't see how sales tax would shift that.

I figured a figure, no pun intended, would be a great way to understand what you meant since there are regional variations to language.

Here's mine. Do you agree with it?
http://postimg.org...

It only decreases supply and thus decreases quantity demanded.
Couldn't catch the relevance of decreased supply to decreased demand in theoretical terms. However the above explanation prevails.
I said decrease in quantity demanded, not demand. ;)
I don't know how quantity demanded and demand can be different? I consider them akin. And actually they're. (What can be the other?)
Quantity demanded = Quantity of a good you're willing and able to pay at a certain price
Demand = a schedule of purchase = the quantities demanded of a good at all prices
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/20/2015 5:26:06 AM
Posted: 1 year ago
Also, sorry for adding the emoticon. I just realised its existence, and decided to add one for fun. I had no idea it would come up on the forum index. (I'm double-posting to, hopefully, make the emoticon go away...)
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/22/2015 1:04:00 AM
Posted: 1 year ago
At 3/20/2015 5:17:31 AM, Diqiucun_Cunmin wrote:
It only decreases supply and thus decreases quantity demanded.
Couldn't catch the relevance of decreased supply to decreased demand in theoretical terms. However the above explanation prevails.
I said decrease in quantity demanded, not demand. ;)
I don't know how quantity demanded and demand can be different? I consider them akin. And actually they're. (What can be the other?)
Quantity demanded = Quantity of a good you're willing and able to pay at a certain price
Demand = a schedule of purchase = the quantities demanded of a good at all prices

No offence, but just I saw this just now and couldn't resist posting it:
https://pbs.twimg.com...
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
sadolite
Posts: 8,834
Add as Friend
Challenge to a Debate
Send a Message
3/23/2015 1:07:18 PM
Posted: 1 year ago
There are two ways to tax. The ones you choose will encourage business growth and self reliance and the other ones will reward failure and promote dependence. It is obvious which tax schemes promote the desired effect.
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/30/2015 1:59:40 AM
Posted: 1 year ago
At 3/20/2015 5:17:31 AM, Diqiucun_Cunmin wrote:

No? The law of demand states that price and quantity demanded are inversely related, ceteris paribus.


Quantity demanded = Quantity of a good you're willing and able to pay at a certain price
Demand = a schedule of purchase = the quantities demanded of a good at all prices


Can you provide any reference to it? As I never came across this difference before.

Further I don't see the difference you stated above is significant enough to cause any variation in the conceptual framework of Demand Theory. If Demand represents a schedule; that represent the quantity demanded at each price level and quantity demanded is a particular # of units demanded by customers on a given price level, how does it distort the law that price is inversely related to quantity demanded/demand. Both words/concepts (quantity demanded and demand) proposes the same logic of theoretical relationship of price & demand/quantity demanded.
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
3/30/2015 5:21:56 AM
Posted: 1 year ago
At 3/30/2015 1:59:40 AM, Dazz wrote:
At 3/20/2015 5:17:31 AM, Diqiucun_Cunmin wrote:

No? The law of demand states that price and quantity demanded are inversely related, ceteris paribus.


Quantity demanded = Quantity of a good you're willing and able to pay at a certain price
Demand = a schedule of purchase = the quantities demanded of a good at all prices


Can you provide any reference to it? As I never came across this difference before.
http://econperspectives.blogspot.hk...

Further I don't see the difference you stated above is significant enough to cause any variation in the conceptual framework of Demand Theory. If Demand represents a schedule; that represent the quantity demanded at each price level and quantity demanded is a particular # of units demanded by customers on a given price level, how does it distort the law that price is inversely related to quantity demanded/demand. Both words/concepts (quantity demanded and demand) proposes the same logic of theoretical relationship of price & demand/quantity demanded.

It doesn't. It was proof that language was causing a barrier in communication, however; that's why I asked for your graph...
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
3/30/2015 10:58:57 AM
Posted: 1 year ago
Okay, I think I have some free time!

I don't know where to start, though....as it seems this has gotten heated. I'd love if someone could spare me and tell me where I ought to start, lol.
~ResponsiblyIrresponsible

DDO's Economics Messiah
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
3/31/2015 1:57:26 AM
Posted: 1 year ago
At 3/30/2015 5:21:56 AM, Diqiucun_Cunmin wrote:
At 3/30/2015 1:59:40 AM, Dazz wrote:
At 3/20/2015 5:17:31 AM, Diqiucun_Cunmin wrote:

No? The law of demand states that price and quantity demanded are inversely related, ceteris paribus.


Quantity demanded = Quantity of a good you're willing and able to pay at a certain price
Demand = a schedule of purchase = the quantities demanded of a good at all prices


Can you provide any reference to it? As I never came across this difference before.
http://econperspectives.blogspot.hk...
Thanks. I found this differentiation essential to clarity, would use it next time.


Further I don't see the difference you stated above is significant enough to cause any variation in the conceptual framework of Demand Theory. If Demand represents a schedule; that represent the quantity demanded at each price level and quantity demanded is a particular # of units demanded by customers on a given price level, how does it distort the law that price is inversely related to quantity demanded/demand. Both words/concepts (quantity demanded and demand) proposes the same logic of theoretical relationship of price & demand/quantity demanded.

It doesn't. It was proof that language was causing a barrier in communication, however; that's why I asked for your graph...
Alright, it's not the language actually but the acute terminology usage (Change in Demand=Demand Curve shift & Change in Quantity demanded=movement along the curve).

So I think another way to differentiate the Curve shift vs movement along the curve, is to use "variation vs change" in Demand (when not using quantity demanded word). [which I didn't and that caused confusion :D I agree]
http://wikieducator.org...
Variation in Demand (Expansion and Contraction of Demand/movement along the curve) vs Change in Demand (Shift)
.....(When we say the variation in demand takes place in the market for a particular product or service means this phenomenon occurs ( that is rise or fall in demand) only because of change in its price.Here consumer remains on the same demand curve. He shifting up or down on the same demand curve as shown in dig. Therefore law of demand is concerned with the phenomenon that is VARIATION IN DEMAND which is accompanied by Rise and Fall in price, or known as expansion and contraction in demand.)
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
4/1/2015 12:49:31 AM
Posted: 1 year ago
At 3/30/2015 10:58:57 AM, ResponsiblyIrresponsible wrote:
Okay, I think I have some free time!
Finally! :P
I don't know where to start, though....as it seems this has gotten heated.
Not really...
I'd love if someone could spare me and tell me where I ought to start, lol.
If you could look through my first posts and maybe point out where I erred (since I didn't come to the same conclusion as the OP), that would be great.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
Add as Friend
Challenge to a Debate
Send a Message
4/1/2015 12:52:07 AM
Posted: 1 year ago
At 3/31/2015 1:57:26 AM, Dazz wrote:
At 3/30/2015 5:21:56 AM, Diqiucun_Cunmin wrote:
At 3/30/2015 1:59:40 AM, Dazz wrote:
At 3/20/2015 5:17:31 AM, Diqiucun_Cunmin wrote:

No? The law of demand states that price and quantity demanded are inversely related, ceteris paribus.


Quantity demanded = Quantity of a good you're willing and able to pay at a certain price
Demand = a schedule of purchase = the quantities demanded of a good at all prices


Can you provide any reference to it? As I never came across this difference before.
http://econperspectives.blogspot.hk...
Thanks. I found this differentiation essential to clarity, would use it next time.


Further I don't see the difference you stated above is significant enough to cause any variation in the conceptual framework of Demand Theory. If Demand represents a schedule; that represent the quantity demanded at each price level and quantity demanded is a particular # of units demanded by customers on a given price level, how does it distort the law that price is inversely related to quantity demanded/demand. Both words/concepts (quantity demanded and demand) proposes the same logic of theoretical relationship of price & demand/quantity demanded.

It doesn't. It was proof that language was causing a barrier in communication, however; that's why I asked for your graph...
Alright, it's not the language actually but the acute terminology usage (Change in Demand=Demand Curve shift & Change in Quantity demanded=movement along the curve).

So I think another way to differentiate the Curve shift vs movement along the curve, is to use "variation vs change" in Demand (when not using quantity demanded word). [which I didn't and that caused confusion :D I agree]
http://wikieducator.org...
Variation in Demand (Expansion and Contraction of Demand/movement along the curve) vs Change in Demand (Shift)
.....(When we say the variation in demand takes place in the market for a particular product or service means this phenomenon occurs ( that is rise or fall in demand) only because of change in its price.Here consumer remains on the same demand curve. He shifting up or down on the same demand curve as shown in dig. Therefore law of demand is concerned with the phenomenon that is VARIATION IN DEMAND which is accompanied by Rise and Fall in price, or known as expansion and contraction in demand.)

I've never heard of variation, expansion or contraction of demand in micro before (only credit expansion, expansionary fiscal and monetary policies, etc., which are curve shifts) but I agree, we can use these terms instead for clarity's sake. ^^
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
ResponsiblyIrresponsible
Posts: 12,398
Add as Friend
Challenge to a Debate
Send a Message
4/1/2015 4:13:09 AM
Posted: 1 year ago
At 4/1/2015 12:49:31 AM, Diqiucun_Cunmin wrote:
At 3/30/2015 10:58:57 AM, ResponsiblyIrresponsible wrote:
Okay, I think I have some free time!
Finally! :P
I don't know where to start, though....as it seems this has gotten heated.
Not really...

On the first few pages it did.

I'd love if someone could spare me and tell me where I ought to start, lol.
If you could look through my first posts and maybe point out where I erred (since I didn't come to the same conclusion as the OP), that would be great.

Sure.
~ResponsiblyIrresponsible

DDO's Economics Messiah