Since the notion of a sales tax (and whatever people may think, the so-called "FairTax" is a sales tax) - on top, of course, of all the other taxes - has been broached for the United States, I have noticed a very disturbing trend.
This is, "conservatives" saying brilliant things like, "it might be ok if they replace the income tax with it," and other such ill-informed nonsense.
No, it won't.
Ever notice that everything costs way, way more in Europe?
There's a reason for that; almost every nation in Europe uses a sales tax as their primary revenue-driver, instead of an income tax.
"But it would work!"
No, it won't.
I'm going to hold your hand, since nobody in the country seems to be willing or able to use a pocket calculator, and show you why not.
I hope this is the last time I have to blog about this, I really do, because a sales tax is a Jackass-level-stupid idea, from the start to the finish, and economically ruinous.
So, let's start with this.
Under our current system of taxation, a Burger King cheeseburger is $1. (I'm using BK as an example; the sales tax would affect EVERYTHING, not just cheeseburgers, but it's an example, folks. Cope. I will list their financial documents that I was able to find without a for-pay membership at the end.)
Now, to see the breakdown of costs on that, let's take some guesstimates, because we don't really have a choice.
First, BK made a total revenue in 2009 of $2,537,400,000. That's not profit; that's total sales.
Their costs of operations - this is the ingredients and the electric bill, plus payroll - was $1,643, 700,000. (breakdown momentarily.)
Gross profit was $893,700,000; after administration costs, marketing, R&D, and the costs of new franchise startups and opening new corporate restaurants, they had $248,800,000 in pre-tax profit; after-tax was $200,100,000.
That's their annual profits for 2009; out of $2 billion, they got to keep a tenth. That's actually not bad at all.
Now, BK has a little over 37,000 employees; for the sake of simplicity, let's call it an even 40K, and give them each $12 per hour, 40 hours a week. (The discrepancy between the actual wages and mine will account for executive / management pay and health care.)
This puts their payroll at roughly $1 billion; 998 million and change. So, from their "operating costs," take that away, and we're left with $643,700,000 as the costs for their ingredients and electricity.
Let's say the farmers are greedy, and give them half; so ingredients are $321, 850,000 per year, roughly.
They divide that out between beef, lettuce, tomato, pickles, onions, cheese, bread, and whatever hideous condiments they use on those things. So, let's split that 8 ways; $40,231,250 per ingredient per year.
God only knows how many sandwiches that is.
So, 40 million dollars of beef a year; average price of a USDA choice graded steer, dressed for sale, last year was $132 on average, for an average dressed weight of 886 pounds per animal; that's 305,464 steers for good ol' BK per year.
$132 per steer, huh?
Well, steers eat corn.
Let's leave aside all the other things that go into raising a steer for the moment; we'll come back to it.
Corn costs money; the roughly 9,163,920 pounds of corn required a year for BK's beef herd costs a good bit, I'd imagine. Say, $30 per ton, or $137,458 for just the corn (to the farmer. They get a markup when they sell it to the cattle ranchers.)
The corn costs something to grow, too, of course; so. The farmers use fertilizers, pay property taxes, and generally have their own expenses.
Now let's play the sales tax game.
A sales tax is a multiplicative tax; it means that - basically - you pay it every time you're selling something.
So here we go.
Toss a sales tax in on each of the farmer's material costs; 33% or so. (The sales tax advocates are talking about going somewhere around 35%, but I'm feeling generous.)
That brings up the cost of the corn, too, by the same percentage. But when he sells the corn to the ranchers, the cost goes up by 33% again, because it gets taxed on the sale.
So, the COST of the corn has gone up, and thus the price, by 33%, to $182,820, and when it gets sold to the rancher, it gets taxed at 33%, so it costs the rancher $243,151 for the corn that formerly cost him $137,458.
Each of the rancher's costs have now essentially risen by 66%; thus the cost of the beef he produces goes up by the same amount; and thus it not only COSTS $66,783,875 instead of the $40 million it used to, but it gets taxed again, and costs BK $88,822,554 for JUST THE BEEF.
BK then takes all their ingredients, which now - 8 categories, remember - come out to roughly $710,580,430, instead of the $321 million they cost before.
BK makes - let's be generous and say a 20% profit margin on each sandwich. Ignore the fact that they got sued for the $1 double cheeseburger late last year because they were LOSING money on it; let's say they make 20% profit per sandwich.
So, "cost" of the food, including their profits: $852,696,516 - but wait!
Selling those sandwiches is a sale, so they're taxed again!
Cost to the consumer: $1,134,086,366.
Original cost using these numbers: $386,220,000.
The cost has essentially tripled. Want to bet you won't see any more dollar menus if we go this route?
Now, these numbers are obviously a bit off; without hard figures, it's impossible to run exact calculations, but I'd bet I'm awfully close, other than the assumptions I made about BK's profit margin (in real life, their per-restaurant average margin is 12.6%, as of last year.).
But note that this is with the sales tax ONLY, not with it tacked on on top of our other taxes.
In reality, it will be far, far worse.
Please, don't support this in any way if you are a conservative of any stripe; it would be devastating to our economy, as it would apply on EVERY SINGLE PRODUCT.
Yeah, it would pay for health care; we'd have a huge surplus one year. But what does Congress do with surpluses? They sure as hell don't hand them back out to the people who paid the taxes; nooooooo, they spend like...
...Well, drunken sailors STOP when they go broke, so I can't use THAT analogy, can I?
Sources:
http://www.linkedin.com/companies/burger-king (typo here claiming BK has 350,000 employees, lol.)
