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Such Crude Ignorance

When Exxon-Mobil reported profits of $39.5 billion in 2006, Democrats were feeling faint. In 2007, when those profits were $40.6 billion, the wall of noise coming from the Left was even louder. Since most Americans were educated by our government and the concept of "profit margins" is never discussed in the mainstream press, Democrats have been able to keep doing what they do best: demagogue and manipulate.

Hillary's words just don't have the same bite when printed, so here's a quick refresher:

Let's start with "I want to take those profits" and work our way backwards. Hillary's alarming belief is that it is the government's right to seize legally-earned profits from a private business. I'm not sure if I'm more frightened by the statement or the applause it received.

When corporate taxes are raised, the corporation can simply calculate its projected sales and factor in the higher tax rate as it does with any expense. Because of this, higher taxes on a corporation ultimately lead to higher consumer prices. Corporations do not pay taxes. You do.

Since 2004, Exxon-Mobil has paid roughly 41% of their total taxable income in taxes, an average of $27 billion per year. 2004 is also the last year for which complete data regarding taxation at various income levels are available. That year, 130 million Americans filed individual tax returns. The total number of taxes paid by the bottom 65 million (50%) was $27.4 billion.

So in one year, the government takes as much from Exxon-Mobil as they do from the entire lower half of individual tax payers.

Now, as for "the highest profits in the history of the world," it's obvious Hillary doesn't think you understand the difference between a profit and a profit margin (and maybe you don't). Profit margin accounts for the relationship between the amount of money you make (profits) and the amount of money it took to earn those profits.

Let's say you're selling "War Is Not The Answer" t-shirts. The shirts cost you $5, and you sell them for $7. Your profit is $2 (for every $5 you spend). Now, the cotton used to make these shirts is buried under a desert on the other side of the world, you've got textile mullahs salivating over a nuclear cotton gin, and global demand is through the roof. Pretty soon, the price of your precious resource has doubled to $10, and you start selling your shirts for $14.

Wow, you've doubled your profits! You used to make $2 per shirt, and now you make $4! But are you twice as rich? No, because production is also costing you twice as much.

You're still making $2 for every $5 you spend, so your profit margin remains the same. Exxon's profit margin has remained around 10% for the last 4 years, while the profit margins for financial institutions, retailers, and other areas of the economy have been much higher.

Hillary and Obama believe (and want you to, as well) that there is such a thing as "too much profit," and will never mention oil companies' idle profit margins or the fact that profits are directly tied to employee benefits, pensions, and stock earnings, impacting thousands of working individuals and families -- not just whether a CEO gets a new mini-bar in his Gulf Stream.

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  • Anonymous Keith said:
    Thursday, February 21, 2008  

    i agree with your ultimate point. i agree that corporations do not pay taxes: people do. but for future reference, i want to make the argument that companies do not pass along higher costs to the consumer, despite what the free-marketeers (such as myself) want you to believe:

    capitalists say corporations don't pay taxes. they pass on these taxes to the consumer. but there are actually four ways a corporation can deal with this burden. passing on their costs to the consumer in the form of higher prices is only 1 of the possibilities. 2 would be to cut production/administrative costs. 3 would be to pass the burden along to employees: lower wages, cut benefits or fire people. 4 would be to lower profits that the shareholders collect. 4 is the one that democrats implicitly assume will happen when they talk about taking profits from big corporations. and that is the one that they want because after all, people that want to make profits are greedy, right?

    so let's try to determine which of these things are likely or unlikely to happen.

    1) it is my opinion that changing the price is unlikely. i say this because for a product or service, there is an equilibrium price, the point where high price and selling high volume cross. this is the point that will yield the most profit.

    the only two counter-arguments to this that i can see would be that a) corporations can only project what this equilibrium price is. they have no way of knowing for sure how many people will buy something at a given price. so you could say that if there is a limit to how much risk shareholders want to take on, which there probably is, the company might take on less risk by leaning more towards the higher prices rather than selling at volume, even if it does not reflect the projected equilibrium price. or you could say b) the equilibrium price changes when taxes are raised. but i don't know of any reason to believe that this is the case. just a hypothetical possibility.

    2) if a corporation could have cut production or administrative costs, they would have already done so by now.

    the only counter-argument i can see to this is the idea that higher costs jolt companies out of their laziness and encourages them to be more efficient. certainly no one, liberal or conservative, would mind if this were where the burden was placed. but i'm willing to bet that most corporations cannot make up for higher costs through this alone. and i don't think corporations are lazy. they can always pay someone else to not be lazy for them. what it might do, in the end, is jolt companies into taking more risks by cutting costs in risky areas. a kind of all-or-nothing reaction that could have dire consequences.

    3) passing on the costs to the employees. this is the best argument against "corporate taxes" because obviously this is something the democrats/liberals DON'T want. so is it likely? well, first of all, wages are different than prices. with prices, the higher your price, the less you sell. the lower your price, the more you sell. these are both curved lines, of course, which is where that equilibrium i talked about comes in.

    in terms of wages, though, an employer's work output is not usually directly proportional to their salary. a democrat would probably disagree with this to justify themselves. but in reality, wages are more like a threshold than a sliding scale. there is a threshold, a point at which wages and benefits are so low that the employee will actually quit. i say it's like a threshold because it's a lot easier to stop buying a product than it is to quit a job. and of course, the correlation between wages and work output varies depending on the employee's position.

    4) take the profits from those greedy shareholders! those fat cats with offshore bank accounts, smoking cigars in their hummers (which were deducted from their taxes as a business expense, by the way). let's take the money from them. never mind the fact that this sends jobs and factories overseas. never mind the fact that less risk taking means less innovation and progress.

    okay, enough liberal-bashing. sorry, just had to take a swing there. i think we can both agree that it's a bad idea to make certain ventures less profitable for investors. but for the sake of argument, let's pretend it's okay. we are not going to convince democrats that it's not any time soon because they value security and comfort more than progress and freedom. of course, there is no guarantee that the liberals will get either of the things they want through their wealth distribution schemes so you could still argue against it from the consequential perspective and win.

    so: much to a conservative's dismay, number 4 seems quite possible and likely when a corporation encounters higher costs. but they had better get some evidence of this first. and it's probably a combination of 3 & 4, so that alone defeats the hillarys of the world. top

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