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Author Topic: Trickle-down taxation?  (Read 1999 times)
stochastic
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March 26, 2012, 11:54:05 PM
 #1

News source U.S. bill ending oil company tax cuts clears Senate hurdle.

I know it is politically advantageous to say you voted to tax the oil companies, but don't politicians realize that taxes is also a cost of doing business.  If the cost of doing business increases either a company wills top doing that business or raise prices.  They can't run a business and sell the product for less than their investors demand.

Are they trying for Trickle-down Taxation now?

Introducing constraints to the economy only serves to limit what can be economical.
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March 27, 2012, 11:14:41 AM
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News source U.S. bill ending oil company tax cuts clears Senate hurdle.

I know it is politically advantageous to say you voted to tax the oil companies, but don't politicians realize that taxes is also a cost of doing business.  If the cost of doing business increases either a company wills top doing that business or raise prices.  They can't run a business and sell the product for less than their investors demand.

Are they trying for Trickle-down Taxation now?

Oil companies can cope.  The energy sector is booming.  If taxes are needed, surely the sector that has cash flow to pay them are the sectors to collect from?

EDIT:

wft - http://www.reuters.com/article/2012/03/26/us-usa-tax-bigoil-idUSBRE82P0DX20120326

13% tax on a hugely profitable company that gets subsidies for its drilling costs and you are complaining ?

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March 29, 2012, 12:40:52 AM
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I'm honestly not sure how these subsides work, but why not just stop the subsides rather than raise taxes?
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March 29, 2012, 03:38:12 PM
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I'm honestly not sure how these subsides work, but why not just stop the subsides rather than raise taxes?

Because then the sites will be drilled by foreign state owned or subsidised firms and the profits will be taxed in foreign jurisdictions.  The subsidy is like the government investing $1 and getting several $100 back.  Raising taxes on the profits is the government getting an even bigger return on the initial investment.


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April 07, 2012, 06:32:56 AM
 #5

News source U.S. bill ending oil company tax cuts clears Senate hurdle.

I know it is politically advantageous to say you voted to tax the oil companies, but don't politicians realize that taxes is also a cost of doing business.  If the cost of doing business increases either a company wills top doing that business or raise prices.  They can't run a business and sell the product for less than their investors demand.

Are they trying for Trickle-down Taxation now?

Oil companies can cope.  The energy sector is booming.  If taxes are needed, surely the sector that has cash flow to pay them are the sectors to collect from?

EDIT:

wft - http://www.reuters.com/article/2012/03/26/us-usa-tax-bigoil-idUSBRE82P0DX20120326

13% tax on a hugely profitable company that gets subsidies for its drilling costs and you are complaining ?

Yea I complain because the tax is essentially paid by the consumer.  If I am a street vendor that sells hot dogs and the government increases the tax on hot dog sellers then I will charge my customers the original price + the new tax amount.  When a government increases a tax on a business then they are making that business a tax collector as that business just increases the prices on the goods or services they produce which is paid by the consumer.

Introducing constraints to the economy only serves to limit what can be economical.
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April 07, 2012, 07:14:14 AM
 #6

News source U.S. bill ending oil company tax cuts clears Senate hurdle.

I know it is politically advantageous to say you voted to tax the oil companies, but don't politicians realize that taxes is also a cost of doing business.  If the cost of doing business increases either a company wills top doing that business or raise prices.  They can't run a business and sell the product for less than their investors demand.

Are they trying for Trickle-down Taxation now?

Oil companies can cope.  The energy sector is booming.  If taxes are needed, surely the sector that has cash flow to pay them are the sectors to collect from?

EDIT:

wft - http://www.reuters.com/article/2012/03/26/us-usa-tax-bigoil-idUSBRE82P0DX20120326

13% tax on a hugely profitable company that gets subsidies for its drilling costs and you are complaining ?

Yea I complain because the tax is essentially paid by the consumer.  If I am a street vendor that sells hot dogs and the government increases the tax on hot dog sellers then I will charge my customers the original price + the new tax amount.  When a government increases a tax on a business then they are making that business a tax collector as that business just increases the prices on the goods or services they produce which is paid by the consumer.

Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.

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April 07, 2012, 08:26:15 AM
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Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.

It will discourage oil production, reducing supply, driving up prices. Though, I don't know if this will affect the pump price much, initially.
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April 07, 2012, 09:45:32 AM
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Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.

It will discourage oil production, reducing supply, driving up prices. Though, I don't know if this will affect the pump price much, initially.

Not true.  Oil production is profitable and the market will ensure that the oil gets produced.  Remember, the tax credit only matters AFTER the company has covered its costs and made a profit.  So oil production and supply won't be affected.

The oil companies charge whatever the market will bear.  That is a legal obligation on the directors of the companies.  As far as I know, you could reduce all corporate taxes to zero and it won't affect oil prices, but I'm happy to be corrected on that.

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April 07, 2012, 09:57:00 AM
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Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.

It will discourage oil production, reducing supply, driving up prices. Though, I don't know if this will affect the pump price much, initially.

Not true.  Oil production is profitable and the market will ensure that the oil gets produced.  Remember, the tax credit only matters AFTER the company has covered its costs and made a profit.  So oil production and supply won't be affected.

The oil companies charge whatever the market will bear.  That is a legal obligation on the directors of the companies.  As far as I know, you could reduce all corporate taxes to zero and it won't affect oil prices, but I'm happy to be corrected on that.

according to your argument, if we tax 99.99% of oil profits then oil production will not be affected. No, it won't directly affect what they charge, but it will drive all capital away from the industry.

supply will be affected and hence so will price.
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April 07, 2012, 10:07:47 AM
 #10

Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.

It will discourage oil production, reducing supply, driving up prices. Though, I don't know if this will affect the pump price much, initially.

Not true.  Oil production is profitable and the market will ensure that the oil gets produced.  Remember, the tax credit only matters AFTER the company has covered its costs and made a profit.  So oil production and supply won't be affected.

The oil companies charge whatever the market will bear.  That is a legal obligation on the directors of the companies.  As far as I know, you could reduce all corporate taxes to zero and it won't affect oil prices, but I'm happy to be corrected on that.

according to your argument, if we tax 99.99% of oil profits then oil production will not be affected. No, it won't directly affect what they charge, but it will drive all capital away from the industry.

supply will be affected and hence so will price.

Good points if only oil companies paid that rate.  However, if all companies were taxed at 99.99% of profits, oil would still be drilled as the return on capital invested in oil is better than most other industries.

To be fair, that's a bit theoretical isn't it?  13% is a long way from 99.99% and right now oil companies pay less than most even though its a more profitable industry.

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April 07, 2012, 10:26:27 AM
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Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.
You are correct, but your argument isn't relevant. Increasing the tax on oil doesn't just raise one company's costs, it raises *every* company's costs. You are quite correct that if something just raises the costs of one provider of a competitive good, most of the price cannot be passed onto the consumer. However, if something raises the prices of an entire market sector, most of the price will be passed on.

The exception would be if there was easy good substitution from markets not taxed, but in that case, the tax wouldn't raise much money and would instead shift the market to less efficient goods. For example, if you did heavily tax oil, the result would be that for some uses where oil was maximally efficient, less efficient energy sources for that use would be substituted.

Here's the reductio ad absurdum to see why: Say gasoline is selling for $4/gallon. If the government taxes just Exxon $4 per gallon of gas sold, Exxon can't charge $8/gallon to make up the tax. They'll just have to stop selling gasoline and the prices will go up just a bit due to the increased competition. But say the government charges every company that sells gasoline $4/gallon in taxes. Surely you don't think the price at the pump will still be $4 per gallon.

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April 07, 2012, 01:02:20 PM
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Um no. It reduces the dividend the company pays.  The consumer pays the maximum he can be charged regardless of the company's costs.  If the consumer is being undercharged, the directors are in breach of their duty.
You are correct, but your argument isn't relevant. Increasing the tax on oil doesn't just raise one company's costs, it raises *every* company's costs. You are quite correct that if something just raises the costs of one provider of a competitive good, most of the price cannot be passed onto the consumer. However, if something raises the prices of an entire market sector, most of the price will be passed on.

The exception would be if there was easy good substitution from markets not taxed, but in that case, the tax wouldn't raise much money and would instead shift the market to less efficient goods. For example, if you did heavily tax oil, the result would be that for some uses where oil was maximally efficient, less efficient energy sources for that use would be substituted.

Here's the reductio ad absurdum to see why: Say gasoline is selling for $4/gallon. If the government taxes just Exxon $4 per gallon of gas sold, Exxon can't charge $8/gallon to make up the tax. They'll just have to stop selling gasoline and the prices will go up just a bit due to the increased competition. But say the government charges every company that sells gasoline $4/gallon in taxes. Surely you don't think the price at the pump will still be $4 per gallon.

I agree with your logic.  asdf made the same point.  A tax on oil would indeed raise prices.

However, the OP linked to a story about tax credits that are given to oil companies and no-one else.  Its not a tax on oil - its the removal of subsidy that helps oil companies pay less tax on their profits than most others.

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April 07, 2012, 03:53:49 PM
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In the end, in order for economies to become sustainable, one has to tax that which we want less of. One thing that we necessarily need less of are processes which consume more of the Earth's naturally produced capital than the Earth can produce per unit time. Such things typically are clean atmosphere, oil, natural gas, food, and most importantly, flora and fauna, since the Earth's flora and fauna contribute to the recycling of everything.

Identifying and taxing such processes shifts competition, and by extension, research and development into processes which are sustainable.

See link: http://seedmagazine.com/content/article/rethinking_growth/
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April 07, 2012, 07:08:39 PM
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In the end, in order for economies to become sustainable, one has to tax that which we want less of. One thing that we necessarily need less of are processes which consume more of the Earth's naturally produced capital than the Earth can produce per unit time. Such things typically are clean atmosphere, oil, natural gas, food, and most importantly, flora and fauna, since the Earth's flora and fauna contribute to the recycling of everything.

Identifying and taxing such processes shifts competition, and by extension, research and development into processes which are sustainable.

See link: http://seedmagazine.com/content/article/rethinking_growth/

The purpose of taxes is to fund the government, not manipulate the market. To deal with externalities, estimate the cost to society and charge more for drilling rights.
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April 07, 2012, 07:17:42 PM
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The purpose of taxes is to fund the government, not manipulate the market.

Oh, okay. If you say so.

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To deal with externalities, estimate the cost to society and charge more for drilling rights.

Oh, you mean tax drilling rights, and thus manipulate the market?
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April 07, 2012, 08:03:57 PM
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It's not a tax it's a fee.
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April 07, 2012, 08:05:04 PM
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Quote
The purpose of taxes should be only to fund the government, not manipulate the market.

Obviously tools can be used incorrectly, and this is my opinion.
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April 07, 2012, 08:11:33 PM
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It's not a tax it's a fee.

Two different words, one effect.
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April 07, 2012, 08:16:25 PM
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Quote
The purpose of taxes should be only to fund the government, not manipulate the market.

Obviously tools can be used incorrectly, and this is my opinion.

All taxes which fund the government manipulate the market.
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April 07, 2012, 08:21:08 PM
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Quote
The purpose of taxes should be only to fund the government, not manipulate the market.

Obviously tools can be used incorrectly, and this is my opinion.

All taxes which fund the government manipulate the market.

That's true, however some methods of taxing do so more than others. People should want their governments to avoid picking winners and losers as much as possible.
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