Forum Post: Sales profit cap = lower prices = increased sales = increased jobs = increased tax revenue = problem solved
Posted 12 years ago on Nov. 17, 2011, 4:23 p.m. EST by FriendlyObserver
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This content is user submitted and not an official statement
Sales profit cap = Problem solved
Sales profit cap = higher prices (to protect profits) = reduced sales (because of higher prices) = fewer jobs (because of reduced sales) = reduced tax revenue = problem exacerbated.
Yes.
Competition between businesses is what limits profits (each one is trying to push the pricetag lower). There's no need for government to "cap" profit except in the case of a natural monopoly (like the electric company).
natural is a good wood for the high wire system
it should be preserved like a National Park
Huh?
.
the iron towers that run electricity to everyone
I have no idea how your comment relates to my original statement that "There's no need for government to "cap" profit except in the case of a natural monopoly (like the electric company)."
How does the composition of the towers have any relevance?
this looks like a collage of general terms arbitrarily equated
I believe we were talking about electricity
and that it is a public good that should be provided to every one
this looks like a collage of general terms arbitrarily equated
I believe we were talking about electricity
and that it is a public good that should be provided to every one
Electricity is provided to everyone. There's a tax (called an access fee) to ensure everyone can be hooked-up.
increased jobs where? and where does the increased tax revenue finally end up? jobs are moved overseas and 88% of real revenue last year went entirely to corporate profit, only 1% went to salary and wages. problem not solved.
our government and our economy are controlled by corporations. the problem is not solved.
This is a very simplistic argument
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Was not complimenting u
could work.. then profit would become income equal things out.
No, because a profit cap would de-incentivise new firms entering the market. Remember, everybody wants to make money.
More competition is the answer because it drives prices down, thus revenues and profits.
there would always be new firms cause everyone wants an income. how would that hinder anything. im sure the sales cap would be much much greater income than a person could make being an employ. if you could make the most at your company would that not be the position you want? owner?
No, you make a company to turn a profit, that's the incentive.
There is a different market for every single type and model of product or service.
People start companies where profits are being made, not in failing ones or ones where profits are not being turned. Profits mean a securer income but you don't start a business thinking "I want to be mediocre", you start a business wanting to make a lot of money.
no you start a business cause you want to provide a certain lifestyle.. and be free to operate the way you like not be someones lacky no you do not start a business and plan to become gates. you have a particular level you want to maintain.. if its better good. if its not.. no big deal.. you still have your certain lifestyle.
You need to profit to profid that lifestyle
no you need income
Yeah and income is based off of revenue. If you can't cover your costs, you go out of business. The more you profit, the better the lifestyle.
revenue is not profit, income is included in revenue.. so if you stay in business.. you have income. which should be the goal if you are willing to give up income just cause your miffed you have no profit.. i dont want to invest in your company.
Salaries and wages are expenses. Revenue is income for the company.
my point .
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Demand is the willingness and ability of a consumer to pay.
If there's high demand, then new firms enter the market. But with a price ceiling, firms won't enter the market and you'll have a shortage.
Sales profit or loss depends on cost of sales and sales price. A cap on sales price could lower profits if the cost of sales remains the same. The. Company then decides to reduce sales to reduce loss, or just get out of that cbusiness. Either way the worker loses. Supply and demand , plus competition set profitability. As profitability increases, worker demand increases due to more production and everyone benefits.
How about truth in profits?
How much did a particular ware cost to produce?
If it was a 3,000% markup would you still buy it?
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I think that it would negate the need for price controls.
Sales profit cap doesn't equal lower prices, it just means businesses can't keep all of their profits.
So I think what you mean is sales profit cap = more taxes.
Let's form another "Super Committee" to determine what the "cap" should be. "Super Committees" have a great track record for accomplishing great things for our society. Our bold leaders are so smart........I would even like to have them oversee our healthcare system.
I agree with a profit cap for certain things that are essential for life such as food, and gasoline. Though, even that gets complex as I feel that Pepsi should be allowed an unlimited profit margin compared to say... a Milk company or an egg company. You don't need Pepsi to live. It's a luxury product. Likewise, a company like Apple should not have a cap on profit margins for luxury products like iPods. Of course, the catch is, who defines what is luxury vs. not luxury. People need clothes, but do they need to shop at Saks or Banana Republic? Nope.
people shop wherever they choose to. You have a problem with that?
Not at all. However, some brands are obvious luxury brands with an obvious mark-up and that's part of their whole branding. Luxury items should not have a profit cap.
Nothing should have a price cap. It should all be market driven
I agree! :)
See if you can get FriendlyObserver to agree.
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Yeah, I can't agree with that. Louis Vutton (or however you spell it) should be able to charge as much as they want and profit as much as they want for their hand bags. Nobody needs their hand bags.
There is a difference between want and need.
So you are saying the cap should only apply to life's necessities?
That's exactly what I am saying. Nobody needs an LV handbag. They should be able to profit as much as they want.
I agree. The only think you really need is food and shelter, and those are already subsidized by the government for the people that cannot afford it.
No caps for anything. Consumer driven market all around.
I agree. It has worked fine for 100s of years, why change it now.
And I agree with you.
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If you increase the amount of handbags sold, you decrease their exclusivity, status as a luxury item, etc. You basically ruin the brand.
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Who is the manufacturer? Does Apple manufacture computers or does Foxxconn?
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So, same as Apple... If Rooms to Go designs the furniture, and contracts with some asian company to manufacture it, why doesnt Rooms to Go get to set their own price? The manufacturer would have nothing to manufacture if not for Rooms to Go's designs. Meanwhile, Rooms to Go exists to make a profit for their stakeholders, and to maximize that profit. (Note: I have no idea that Rooms to Go actually has this business model... just an example.)
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Too complicated to make work. It would probably be far more complicated than our tax code. There are just too many things to define, too many exceptions, etc. It would never work.
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There's a huge difference between complexities bound by the laws of physics and and things bound by the ambiguous (at best) laws of man.
See, it's not as simple as you would like it to be.
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Apple does both. They have their own retail stores and they sell in Best Buy, Target, Walmart, ATT, etc.
I agree that resturaunts shouldnt be capped since eating out is a luxury.
Banks but and sell money, but one could argue that what they are really selling is intellectual capital. They sell a service. People pay good money for skilled financial experts.
I understand what your end goal is, but I believe your process to get there completely flawed. The very concept of a profit cap has many issues. I agree on capping things that are necessary to live like gas and basic foods (although, what defines basic foods). However, anything else is fair game. Apple has a 42% annual gross profit margin for 2011. Good for them. They produce a quality product that people want to buy. If people need a computer but dont have much money to spend, they can always go purchase an Asus or eMachine.
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Do you have a published, peer reviewed journal paper or published thesis to provide? Perhaps something is being lost in your forum posts.
No, there is a market price for every item. You can't just decide on a price and make people pay for it, there is an equilibrium.
Boycott Wal-Mart
And would this be a system-wide cap or a case by case cap? And who gets to decide? What happens when the people making Yachts have the same cap as the people selling bread? Or if it is a case by case cap, what is fair? Wouldn't you be regulating competition by not allowing businesses to spend more money on expansion instead of having to spend all their money on survival?
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So, a sales cap on manufacturers?
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Point of buy = Manufacturer Point of sell = Retailer
So do you think when a retailer buys an item from a manufacturer at $1.00 and sells it to a customer for $2.00, the retailer makes a 100% profit?
Chain of exclusive retailers, sales profit cap solved.
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You buy material for $5 and want to sell product for $100, but sales cap is for example 50%. So, you just "sell" the product to another corporation that you also own for $10, which in turn "sell" to another for $20, then $40, then $80, then just retail to the public for $100. It's just more bureaucracy.
There is a law that limits such a thing
What law?
A law that limits chain retail. Good luck finding a cuustomer
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The bonuses and salaries given to executives that are being protested about are not actually profits.
A normal profit means you're just breaking even with Total Costs of Production. An economic profit is above that.
Bonuses are usually from economic profits but in a perfectly competitive market, you can't make economic profits in the long run.
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Salaries are an expense, bonuses are often based on profit or company goals, but since they are often set out in a contract with executives it still might be considered an expense. You may get a reduction there if profit is capped, but most corporations don't make that much in profit, measured in percent.
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That would depend on your definition of profit, to the owner (or stock holders) paying those salaries and bonuses they are expenses, not money left over after getting goods to market.
Doesn't matter much though, you'll never get political change like that unless you can get the people involved in this movement to actually vote for someone that supports that idea. I haven't seen any of the occupy movements attempt to draft supporting candidates to get real change. If all they are willing to do is demonstrate for someone else to act they won't get anywhere no matter how you define profit and loss.
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While that is one definition it isn't the one used in microeconomic theory. There is it the difference between total revenue and all costs. The buy-sell definition works only for investors not for anyone actually producing anything. It's the definition a firm would use to report to their stockholders, not the buy-sell figure.
Probably would make a difference if anyone ever got around to crafting a law. I could see firms now trying to depress stock values to keep one definition of profit low.
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Of course it does, I'm just saying profit is not the thing to go after, you have to define and limit excess compensation somehow. It's the opening proposition in the original post I find fault with. It's not profit that is the problem it's the compensation.
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Fine wave a wand and make it happen. That's the only way the occupy movement will get anything done. No one seems to want to actually work at it and get people elected to accomplish change.
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When was that? Capitalism as a system has always had detractors, from the early movements to form unions there have been people speaking out against the ones that accumulate vast wealth. They also actually did something other then discuss.
If OWS is just leading a discussion group then it's wasting everyone's time. It's organized people, if it's organized enough of them then it should exercise this power and vote in change.
So you want to limit my salary as a worker at the auto dealer? Wow. Lame.
.
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Wow. Great publicity idea to harm the car and other salespeople in the ~60th percentile of income earners.
Guess you don't represent the 99%.
Company owner take home bigger paycheck to show lower profit. Sales profit cap solved.
Got any other stupid ideas?
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Wages are expenses. Profit = Income - Cost of Doing Business.
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Wages are expenses.
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Doesn't that depend on the perspective? Wages are profits for the employee but expenses for the stock holders.
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If only it were that simple lol. I have made enough money to retire and live off of for the rest of my life. If my profits were capped, I would just layoff my employees and go to Caribbean to sit on the beach. I am sure many others would do the same.
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Citizens who identify themselves as Democrats, Republicans, Independents, Tea Party, or OWS can all agree that we need to get money out of politics. That is a true goal of the 99%. And, in my opinion at least, the source of most of our problems is the money in politics.
No one can say that capitalism has not worked well for the United States. The fortunes of Rockefeller, Carnegie, Morgan, Vanderbelt, and other tycoons of the time make the 'tycoons' of today look small. And look at our growth from there. There is nothing wrong with trying to make a lot of money, you just should not be able to use that money to make a nation's laws.
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Huh? I care about the well being of my own employees. You don't have good employees if you don't treat them well.
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No, I go a week before Christmas. Because we don't have unlimited profits, I keep making money and my employees keep making money and keep getting their benefits, our clients keep coming back, and so on. We all win.
I only have 9 employees and they are great so it is easy to treat them well. I realize that does not always hold true in a corporation with 125,000 workers, but the good ones should and do do it. Happy employees are productive employees.
I thought you'd be in a ditch because the idiot police caught you and threw you there.
I buy inventory, i buy resources to move that inventory (employees are resources), and I sell my inventory to my customers. After I am done buying and selling, what I have left is profit.
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That's much too simplistic, and does not at all account for the cost to move, store, advertise, etc. that inventory. You cannot remove these things from the equation.
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Sounds quite arbitrary. There are many more costs associated with running a business than just transportation. You seem to be making this up as you go without really giving it any thought.
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Why would you choose transportation and exlude all other costs? I would like to hear your rationale there.
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I spotted an immediate flaw:
An old-fashioned paper book seller gets to "deduct" transportation costs, but an e-book seller does not get to deduct anything.
That seems very unfair. After all e-book websites cost a great deal of money to operate. Why should paper book sellers get an unfair advantage vs. e-book sellers?
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You buy transportation, just like you buy water, warehouse space, electricity, janitorial services, etc.
Revenue - Total Expenses = Profit (Loss)
Total Expenses are everything it costs to run the company from payroll to income taxes.
Profits DO NOT = Wages Profits = Profits Profits can become wages, investment capital, charity, etc. But saying Profits = Wages is like saying Butter = Garlic Butter Dipping Sauce. Butter can take many forms and have many uses after it it becomes Butter.
Take accounting
"It is better to keep silent and be thought a fool than to speak and remove all doubt"
^ This doesn't even make any sense at all. Sit through Economics 101 and Finance 101 and educate yourself. Next.
Just because you say it doesn't make sense, doesn't make it so. Please explain where the formula is flawed.
Every SINGLE relationship is flawed and the entire thought process behind the "formula" (read: rantings of an insane man) is flawed.
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How would you know?
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Judging from the voting, you don't know your ass from your elbow.
Just sayin' ...
I took Econ 101 too. Where did you take yours? Art school?
You seriously must not get good grades because I've never heard of this and I'm a Financial Economics major.
Do you mind if I ask your age?
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This is what a price ceiling is. Price ceilings cause a shortage.
There will be less jobs because less firms will be in business at an artificially low price.
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Forcing down a price doesn't shift a demand line, it marks a movement ALONG the demand line. There is a difference between Demand and Quantity Demanded.
In order to cap profit, you have to cap revenue.
Revenue = # of Goods Sold x Price per Good
You're suggesting to control the price. Even though you don't think so, you are. Consumers respond to prices, not profits.
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Yeah, its actually called a revenue cap and its used for monopolies like gas companies and such.
If there is only one provider of a utility in your area, chances are they have a price that has been set by the government.
It controls the price, not just a portion of it. You need to know the costs of the company in order to know what their sales margin is, which isn't always constant.
Manufacturers are still governed by the laws of supply and demand so the market sets the price and they have to sell where supply meets demand.
You can't just set your own price, tell customers to fuck off and automatically make a profit. Even in a monopoly.
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Price of good - cost = Sales Margin
From this point on, use the term sales margin because "retail profit" is not the right term.
Limiting the margin means you limit the price and/or the cost in this equation. And that's a price ceiling
I see that you're trying to say...
Net Margin = Margin - some percentage of the margin
But that shifts supply left because firms will leave the market, which will raise the price, not lower it.
So it's your call...either way, firms are going to leave the market.
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The reason I saw this as a price ceiling is because the OP implied a price ceiling.
Equating a profit cap with lower prices means its probably a ceiling if it doesn't shift either supply or demand in a way that doesn't actually lower the price.
Actually the only way to lower the price with a Sales Margin cap would be a price ceiling.
Profit = Total Revenue - Total Expenses
Revenue = Number of goods sold x price
You either have to control revenue or expenses to control profit. Revenue would be easier and since you're talking about taking a percentage from the sale, it directly effects revenue.
A profit cap is a revenue cap that is relative to expense. It doesn't matter if it is a percentage or an absolute value. And you can't raise your expenses and just expect revenues to go up.
What you;re saying will have the same effect as a price ceiling: a shortage.
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No, why would you have job creation? The firm makes less money on the sale. The firm uses the margin to pay it's expenses and wage/salary is an expense.
If you decrease the margin, you have less money to meet your wage/salary expense. Its really just that simple.
Companies and firms are the job creators. Taxing income is one thing but messing around with the market is another.
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No, no, no, no and no.
Consumers react to prices. Consumers are the source of revenue and revenue is what gets people paid. True, without consumption, there would be no jobs. But with no firm, there would definitely be no job. You can have a job and no consumers if you price yourself out of the market.
Consumers do not directly create jobs, they consume because its in their self interest to consume.
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You don't have a line of reasoning for proving your theory because its wrong.
The questions you're asking are complicated to say the least and you're solution will only make matters worse because it inhibits growth and discourages new companies.
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I think you and fuzzy both have points. But something that is missing here is the pschological aspect of consumer confidence. Consumer confidence drives demand, which will result in job creation. Or the opposite, like we have now. Lack of confidence resulting in job loss. Consumer confidence, and the psychology of that, underlies everything else.
The way I think of it - supply and demand is a circle that feeds upon itself, drives itself and sustains itself. When consumer confidence is high, the circle gets bigger, with job creation and wealth. When confidence is low, the circle is smaller. We (individuals and govt) have to eat into our wealth (debt) and rely on govt programs.
I think we know pretty well what the problems are in our country. Government corruption and the inequality of our voices in government. Perhaps if this begins to change, it will have the psychological impact of increasing consumer confidence.
You're making the assumption that this legislation would not decrease market wide revenue. But it would drive firms out of the market, resulting in higher prices. The system is dynamic, it reacts to regulations like these. Your hypothesis is entirely contigent on whether or not the good is elastic or not. If it isn't, it will raise revenues for those that still stay in business. But even if that's true, it doesn't meannet job increase. It could mean net job loss. So problem not solved. If this were blanket legislation, it would promote higher prices and would drive firms out of the market, woeking toward a monopoly.
Clearly you have always been an employee and never a business owner. I usually try to be respectful, but with all the crazy posts I've seen, this is the most idiotic. If I can't profit from what the market bears I'll go work for someone else. Wait what happens if there are no business owners, I believe there will be no one to work for. Typical of the socialists views on here.
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Clearly you don't understand a thing about running a business, let alone the reasons for starting and growing a business. Clearly you have no idea how much effort and risk a business owner undertakes. Clearly you have no idea how seriously most business owners take the responsibility of providing employemt to yahoos like you. Let me guess, you are a union member who believes the only reason a business exists is to pay your salary and benefits. Tell you what, as a business owner I support federal wage and salary caps. Then you'll have the same opportunity to grow as the business.
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It is moronic to set price caps. If you thing something is overpriced, don't buy it. Supply and demand will solve it. If you think Joe Mauer is paid too much, don't buy a baseball ticket. Bono overpaid? Apparently not, as he can get huge dollars and sell out big venues. Do I think certain things cost too much? Lots of things do, and I don't buy them, unless I see a value that out weighs the cost. I could give a hoot how much an owner makes. It doesn't effect me whatsoever. And it doesnt effect you either.
Actually as hard as I've worked and with the risks I've undertaken, I do deserve it. Thanks for reminding me. Now go extract more unearned pay from your employer.
What if we cap it at zero? Then the profits would be infinity!!!!
Trololololol
U Jelly Capitalism?
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He did make a great mathematical analysis!
Please stop smearing dumbass all over my heated capitalist walls.
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Price controls? how very fascist of you.
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No profit controls either. High or low gross margin is up to the seller. It's a consumers choice to buy,........or not to buy.
http://www.youtube.com/watch?v=4Z9WVZddH9w
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That's all the internet is.
Profit cap = reduced investment = shortages = black market.
Please tell me that you didn't graduate college.
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Are you really this stupid? Seriously, did you dream this up yourself or did someone tell you?
In the short-run, lower prices would increase demand. But so what? You people have already decided that you hate that model. That's Wallmart in case you didn't notice.
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Yes, and lower profits reduce supply.
Companies right now compete. When excess profits are present, someone else comes in to try to capture that.
With government price controls, and that's what you're talking about, bureaucrats run the economy. If profits are insufficient, demand is there, but supply won't be. That means that people will pay more than the government price and suppliers will try to meet that need outside the government system. Price controls = more demand, but less supply and shortages and black markets.
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So, cripple distribution, but because the maker is OK, everything's fine. Sorry, but that's kooky.
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So that only hurts the retailer. Is that your intent? Curious what level you would cap the profit at?