The effect of California's proposed VAT/BNRT 3

Instead of talking about the stability of the BNRT in the long run, let's talk about the effect of sudden introduction of BNRT  

Same examples as previous post. Recall that farmer buys fruit seed at price S. Plants the seed (adds value to it) and sells the fruit at price G. A canned fruit company buys the fruits, cans them, and sells at price C to distribution, distributor sells to Retailer for price D, and retailer finally sells the product to consumer at price P. We have established last time that the BNRT will be set to be higher than the current corporate tax to cover the elimination of the sales tax. For simplicity sake, let's call bnrt = CT + o; The farmer's previous profit was (G-S) * (1-CT) but is now (G-S) * (1-bnrt) the income is now less, so to make up for the difference, he charges for a price G' such that (G' - S) * (1-bnrt) = (G-S)*(1-CT) solve for G'

G' = (G-S) * (1-CT) / (1 - bnrt) + S  

G' = (G - S) * (1-CT)/(1-CT-o) + S G'
   = (G * (1-CT) - S*(1-CT) + S(1-CT - o))/(1 - CT - o) G'
   = (G * (1-CT) - S*(1-CT-o-1+CT))/(1-CT-o) G'
   = (G * (1-CT) - S*(-o))/(1-CT-o) G'

   = (G * (1-CT) + S*o)/(1-CT-o)

shoot! so, now the can company received not only an increase in cost but also an increase in taxes.

Previous earning is: (C-G) * ( 1-CT)
now the earnings is:
(C'-G') * (1-bnrt) = (C'-(G * (1-CT) + S*o)/(1-CT-o)) *(1-CT -o) = (C'*(1-CT-o) - G*(1-CT) - S*o)

solve for C' 

(C'*(1-CT-o) - G*(1-CT) - S*o) = (C-G) * ( 1-CT) C'*(1-CT-o) - G*(1-CT) - S*o
    =(C-G) * ( 1-CT) C'=((C-G) * ( 1-CT) + G*(1-CT) + S*o) / (1-CT-o) C'
    =(C-G -C*CT + G*CT + G-G*CT + S*o) / (1-CT-o) C'
    =(C - C*CT + S*o)/(1-CT-o) C'
    =(C*(1-CT) + S*o)/(1-CT-o)
...ad nauseum...

to arrive at P' = (P*(1-CT) - S*o)/(1-CT-o) as the price that the final retailer's price to arrive at the same profit as before.

P' = P * (1-CT)/(1-CT-o) - S * o / (1-CT-o)

ugh! let's plug in some numbers.

Example 1
original seed S=1 final original price P=10 Corporate Tax CT = 10% tax increase o= 1%

P' = 10 * (1-10%) / (1-10%-1%) - 1 *1% /(1-10%-1%) P' = 10.1012

price increase of 1.01% results from an bnrt over ct by 1%


Example 2
original seed S=1
final original price P=50
Corporate Tax CT = 20%
tax increase o= 5% P' = 50 * (1-20%) / (1-20%-5%) - 1 *5% /(1-20%-5%) P' = 53.27

This corresponds to a 6.53% sales tax.


Example 3
original seed S=1
final original price P=100
Corporate Tax CT = 20%
tax increase o= 5%
P' = 106.6

equivalent of 6.6% tax. The doubling of profit from example 2 to example 3 with all else being equal illustrates how the implicit sales tax increase when the Value Added increases with out changing any explicit tax rates.


Example 4
original seed S=1
final original price P=50
Corporate Tax CT = 20%
tax increase o= 6%
P' = 53.97

The equivalent sales tax rate is 7.945%. An increase of 1 percent in bnrt tax(as compared to example 2 results an equivalent of 1.416% increase in sales tax in this situation.

Example 5
original seed S=1
final original price P=50
Corporate Tax CT = 20%
tax increase o= 7%
P' = 54.70

Equivalent sales tax is 9.40% which is an increase of 2.87% in equivalent sales tax due to an increase of 2% BNRT as compared to example 2.

So an increasing the BNRT automatically increases in price equivalent to sales tax by a %-age larger than the raw BNRT increase.

The effect of California's proposed VAT/BNRT 2

We're still not necessarily convinced that things will remain great. Let's use a more concrete example: Farmer buys fruit seed at price S. Plants the seed (adds value to it) and sells the fruit at price G. A canned fruit company buys the fruits, cans them, and sells at price C to distribution, distributor sells to Retailer for price D, and retailer finally sells the product to consumer at price P

we should also define some taxes: bnrt is the rate of BNRT, CT is the corporate income tax, ST is sales tax.

current case:
Farmer: pay S, get G, pays tax (G-S)*CT
Canner: pay G, get C, pays tax (C-G)*CT
Distributor: pays C, gets D, pays tax(D-C)*CT
Retailer: pays D, gets P, pays (P-D)*CT
Consumer: pay P, pays tax: (P)*ST

total tax received: (P-S)*CT + P*ST


BNRT case:
Farmer: pay S, get G, pays tax (G-S)*bnrt
Canner: pay G, get C, pays tax (C-G)*bnrt
Distributor: pays C, gets D, pays tax(D-C)*bnrt
Retailer: pays D, gets P, pays (P-D)*bnrt
Consumer: pay P, pays tax: 0
total tax paid: (P-S)*bnrt

if the government wants to keep income the same how much should he set the bnrt?

(P-S)*bnrt = (P-S)*CT + P*ST
bnrt = CT + ST * P / (P-S)
bnrt = CT + ST / ((P-S) / P)

bnrt is to be set as approximately the current corporate tax plus sales tax divided by the gross profit margin of all business processes in the state.

Next time, we should analyse the claimed stability of BNRT resistant to fluctuations in business cycles.

The effect of California's proposed VAT/BNRT

What is the effect of eliminating sales tax, lowering income tax and establishing BNRT?


The sales tax is lowered to 1/5 of previous, sales tax of nearly 9% or 10% is completely gone, but a tax is added to transactions. The only deductions are house, charitable, and...

For a business, the Business Net Receipt Tax is a percentage of

OUT=$ listed on receipts I receive while doing business (after paying $)
IN=$ listed on receipts I issue while receiving $ in the process of doing business.

So BNRT a business has to pay is Tax_Percentage * (IN - OUT)


Cool, eh?

Not having income tax and lower sales tax means the money made in California will tend to stay in California (because tax is lower, so it's not worth it to take the high income and spend it out of state where tax is higher)


One reaction people will have is this: Wouldn't businesses tend to become more vertically integrated. If the making of a product requires either two companies or three companies, which one would I prefer?

bnrt = bnrt tax rate
r=original raw cost
p=market price for the final product

2 company case:
p1 is the price the intermediate product sells for
p2=p is the price of the final product.
total tax paid is: (p1-r)*bnrt + (p-p1)*bnrt + 0 sales tax
do the math, and the total tax paid is (p-r)*bnrt


3 company case:
p1 is the price the intermediate product sells for
p2 is the price of the intermediate product between p1 and final result
p3=p is the final sales price
the total tax paid is: (p1-r)*bnrt + (p2-p1)*bnrt + (p-p2)*bnrt + 0 sales tax
do the math, and the total tax paid is (p-r)*bnrt

same!! they're the same!! (to the government, if the sales price remain the same as a result) Since the original costs are the same, and the the cost of final product are the same, the total money made by private sector is

p-r-(p-r)*bnrt = (p-r) * (1-bnrt) is the same for both case. So the tax doesn't fundamentally affect the cost of doing business, more or less, the money made is the same.


tomorrow, we will check if the final price will remain the same...

equality

A part of our American Dream is to achieve it's political ideals...

We hold these truths to be self-evident, that all men are created equal,...

equal treatment, equal protection, equal rights and liberties...

so this reminds me of a heuristic in collaborative filtering (originally text classification for me) When receive rating from users, some users will respond with ratings for more things than other... This tend to create the ability for diligent users to influence the system systematically.

If I only vote for movies with Clint Eastwood, then certainly I could influence a recommendation system that makes recommendations based on lead actor/director.

In fact, if I vote for 100 movies with Cient eastwood in them in one boring afternoon at work. And 100 other people, over the course of a year, come to the system and vote for Sean Connery (born same year, btw).

The influence I have on the system in one pathetic afternoon is going to be same as the collective influence of 100 people over a long period of time (aka all time favorite).

There is of course an easy fix for this. Even most beginners in the field will quickly discover what is commonly known as normalization. My vote for each actor/director is "normalized" by dividing it by the number of votes I made. This means if those 100 people voting for Sean Connery (if they were dedicated fan who would not even consider voting for another actor) would give Sean Connery a total of 100 votes. Where as my 100 votes for Clint Eastwood, would have only given Clint Eastwood 1 additional point.

This is fair!

The first time I ever talked to somebody about this, it wasn't immediately obvious that a user like me, who spends the afternoon poisoning a recommendation system, should be reweighed. The argument there is, well, if you were such a big fan, and you spend your afternoon boosting your favorite actor's scores, your dedication means you deserve more voting power.

Hmmmm, well, this is a contrived exmaple, but in other situations this may actually make sense...

Hmm... well, so, this is America, and everybody get's one vote, and that's just that. I argued.... yeah, but actually no. We have the electoral college who are aggregated votors that counts for more than you or me.

Hmmm... well, so, here, let's use (my favorite) naivete. If I am presented with a bunch of scores from two people. Suppose that I have a choice of how much each voting power each of the two people have relative to each other... What should I decide?

well, you can look at the two people and see what race they are, age, gender, etc. all probably will have a major roll in this decision...

well, in theory yes, but in practice, if the two users are visiting from their web browser, you really don't have that kind of interaction.... and actually, scientifically speaking, the best assumption you can make is the naive assumption. That indeed all men are created equal. In your eyes, you cannot treat them as non-equal and expect, in the large, to have a better result than if you assume they are equal. (hehee... snicker... operative statement here is "better... than..." heeheee)

In reality, the system often have very static biases that make naive assumption more attractive than the theoretic situation in both the average case and worst case. (hmm, say that bad people are always like me and vote 100 or more times. A system that always value people like me more than people who vote less will have worse worst case than the naive-assumption system. (even if it may have same average case performance); and you can further analyze the opposite where people like me are good, and people who vote less are bad, the worst case can equally be worse than naive system; and if we average over all possible worlds, then certainly naive is greatest of them all)


So... it seems there is a level of wisdom in the American political system, that upon careful inspection, has more to it than what it seems to say:

...that all men are create equal...

is not just a statement of belief that "the world is (made) this way", but more a directive to the government: "Treat them all equal"...

Because this is possibly the best political system we can ever implement.


sigh...

Yale student dead

Sigh... Very sorry to hear of the Yale student Annie Marrie Le's murder. Hope her killer will be caught and put to justice.

This killing stirs a muddy feeling in me. Motives:

Former/Parrallel Lover: So there's another guy that likes her, maybe she kissed him, or made out, or drove him crazy (surely she can, being both exceptionally in smarts and prettiness). And he can't stand the thought of never having her... confronts her, one thing leads to another, a struggle, accidental(or purposeful) murder, and then concealment... Probably a fellow student/researcher or a professor. In a moment of sexual heat, it is not beyond imagination that an intelligent person might commit this crime.

His former/paralell lover: Girl on girl action. MMmmm fun to think about, but unlikely. He's not that hot, and there hasn't been news to the opposite effect.

Her competitor in profession: Nah! if it's not a crime of passion, surely, the doctors and scientists cannot be that crazy. Even in this crazy economy where academic funding is low.

Hate groups: If you read my older blogs, you might suspect that the killer belongs to a hate group I founded. I didn't! And s/he doesn't.

When I first came to California, I found that I hated the girls here. They really raelly love those huge tall white Americans who are well off, better dressed, bigger dick than me.... I hated it sooo much!!! I feel my bones shrieking when I see the image of an Asian women (no, no, it's a very young asian women, still with youth and life, not the dead/unhappy/lifeless kind that we often see walking around) then turning around to kiss a tall handsome White dude. (dreamt of it in nightmares often)

I hate it!!
[0, 255, 0]
I jump up, and punch my desk... yell loud enough to wake my neighbors, and then feel worse, realizing that she's even less achievable now, now that she's in a dream and infatuated with a white dude who's obviously more "fit" for her needs...

But Annie Marrie Le has a curious name, not immediately recognizable to me. Probly does not belong to a family that would cause this kind of hatred (that is to say, she's not first generation, probly speaks English as first language, and consequently, at least for my type of jealousy, is not a target of it).

sigh..., there doesn't appear to be anything that can make up for it... except for some renewed alertness for the universities to take care of their investments' needs and protect them from physical harm...

sigh....

idiocracy

Just saw this movie, and named this blog after one of the things that happened in 26 century:

Fart Museum!!! (*tadaaaaa*)


Wow, some times, ficshun is truerer than reality!!

I cannot believe how often I feel like the average person portrayed by Luke Wilson (well, minus the busty Maya Rudolf) walking amongst some of the world's most advanced most leaderish mostest bestest some such of things, and I look at it, and think: huh?

And then, other times I feel like the people of the 25 hundreds. It's like I don't talk right, I don't think right, and my life is designed for me like a kid's toy, and I still hesitate looking at large icons trying to figure out... duhhhh! butt pain? or baby pooping out of butt? duhhhh!!!! wah????


sigh........ Maya Rudolf seems like a pretty women, wonder why she doesn't do so well on SNL and on these block-non-bustin mooveeeeees...

blah!!!


oh! and I like money.

hahahahhaaaaa