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Farmer Abattoir Wholesaler Retailer Consumer

This document uses a simple example to show how taxes affect the price of goods. It outlines a hypothetical supply chain for a chicken from farmer to consumer. With taxes, the consumer pays $6.81 for the chicken and $2.46 or 36% is lost to taxes along the supply chain. Without taxes, the consumer pays $3.51 for the chicken and everyone along the supply chain earns the same $0.60 profit. This demonstrates that removing taxes could reduce consumer prices by 31% and increase incomes across the supply chain by 3.2 times.

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Matt Polofka
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41 views6 pages

Farmer Abattoir Wholesaler Retailer Consumer

This document uses a simple example to show how taxes affect the price of goods. It outlines a hypothetical supply chain for a chicken from farmer to consumer. With taxes, the consumer pays $6.81 for the chicken and $2.46 or 36% is lost to taxes along the supply chain. Without taxes, the consumer pays $3.51 for the chicken and everyone along the supply chain earns the same $0.60 profit. This demonstrates that removing taxes could reduce consumer prices by 31% and increase incomes across the supply chain by 3.2 times.

Uploaded by

Matt Polofka
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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This is a really simple example that aims to show how much taxes actually affect the price of things.

I do not know any proper tax rates, so I am going to make up some people and companies and guess at som I also dont know profit margins etc, so I am keeping one variable fixed: I am stipulating that the farmer gets I am also going to be stipulating that each person or company involved in the process will be making equal I am also making a big assumption in that the amount of money lost through tax for the purchase of a chick This will include very few steps. Of course in real life there are transportation people involved and other mi The Sales Tax is also only applied to the Retail Sale. 1 Farmer Abattoir Wholesaler Retailer Consumer Individual Company Company Individual Individual Wants to make $1 per chicken 10% ROI Target 5% ROI Target Wants to make $2 per chicken he sells Wants a chicken!

Chicken Cost Farmer Abattoir Wholesaler Retailer Consumer $ $ $ $ $ 2.00 2.92 3.32 6.81 $ $ $ $

4 Extra Materials 1.00 0.15 0.05 0.35

7 Price Consumer Pays: 8 Consumer Earned: 9 Total $ in the pockets: Total Costs: Money Taxed: 10 % Taxed Money Taxed (mats): % Taxed (materials):

$ $ $ $ $

6.81 11.35 2.10 2.25 7.00 62% 2.46 36%

Lets imagine a world without taxes. We are going to stipulate that everyone involved takes home the same amount of money. This will mean that profit margins and amounts will look different, but the actual money in the pocket for e The Materials cost savings is also going to be applied only once, and the workers will be taking home the sa Chicken Cost Farmer Abattoir Wholesaler Reatiler $ $ $ $ 1.24 1.82 2.08 $ $ $ $ Extra Materials 0.64 0.10 0.03 0.22

Consumer

3.51

Price Consumer Pays: 12 Consumer Earned: Total $ in the pockets:

$ $ $

3.51 3.51 2.10

13 % of Previous earn: 14 How much richer? Wait! Theres more!

31% 3.2

The farmer, abattior workers and owners, the wholesaler workers Those dollars are now 3.2x as valuable!

15 So, I have to work only 31% as much to buy the chicken, and the people involved with the

w how much taxes actually affect the price of things. ng to make up some people and companies and guess at some tax rates. eping one variable fixed: I am stipulating that the farmer gets $1 to spend on stuff per chicken he sells. on or company involved in the process will be making equal profits with and without tax. Obviously people will make much more without tax, but this w amount of money lost through tax for the purchase of a chicken as a percentage will roughly be the same for all kinds of products/industries etc. This is al life there are transportation people involved and other middlemen etc. 2 1 10% 5% 2 3 $ ROI ROI $ Income Tax Sales Tax Company Profit Tax

ts to make $1 per chicken

ts to make $2 per chicken he sells

5 Labor Costs $ $ $ $ 0.50 0.20 $ $ $ $ Total Costs 1.00 2.65 3.17 3.67 $ $ $ $ Sale Price 2.00 2.92 3.32 6.81 $ $ $ $ Profts 1.00 0.27 0.16 2.00

From you working to you buying a chicken. That seems high! But thats not the full story

ed takes home the same amount of money. s will look different, but the actual money in the pocket for everyone involved is identical. pplied only once, and the workers will be taking home the same amount in terms of money in their pockets Labor Costs $ $ $ $ 0.30 0.12 $ $ $ $ Total Costs 0.64 1.63 1.97 2.31 $ $ $ $ Sale Price 1.24 1.82 2.08 3.51 $ $ $ $ Profts 0.60 0.19 0.11 1.20

The Same as Above

x the buying power

armer, abattior workers and owners, the wholesaler workers and owners and the retailer all took home the same amount of $ e dollars are now 3.2x as valuable!

s much to buy the chicken, and the people involved with the chicken are making 3.2x the amount of real money!

people will make much more without tax, but this will show how much more your money would be able to buy. same for all kinds of products/industries etc. This is obviously not the case but it is just a demonstration of the principle.

40% 20% 30%

60% 70%

6 Cash in Hand $ $ $ $ 0.60 0.19 0.11 1.20

11 Cash in Hand $ $ $ $ 0.60 0.19 0.11 1.20

ome the same amount of $

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