Another stupid question on speculators

[JRK]

So if I make 1 million dollars profit in the US
and I send those profits to an off shore account
I will never have to pat taxes on it?

If you can claim the income is to an off-shore partner or subsidiary, or if you can on-paper expense income to said entity, you won't have pay taxes on it. I didn't say anything about an off-shore account.

While they were recording record profits last year, they were also writing checks to Uncle Sam to the tune of $100.7 billion -- two and a half times what they made in net profit. In fact, previous Tax Foundation research found that from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today's dollars, that's $2.2 trillion.

Are you claiming that oil companies pay a 250% ("two and a half times what they made in net profit") tax rate, not 8%? That $100.7 billion figure is bogus, and your link doesn't tell where the number comes from (it does, but their link is dead).

Oh, gas "taxes at the pump" are taxes on the oil companies? I think that's taxes on consumers.

No what the link claims speaks for its self
I make decisions on this matters after DD.
I could not agree with you more, the consumer pays for it all, not just at the pump

So with that said why is it our president and many on the left feels as though the "rich" corporations do not pay enough in taxes?

 

[itfitzme]

Exxon makes 8% profit about every year
How is it they can do that with the price of oil at a level that is driven by pure speculation?
and
Who is it that ends up with these speculated cost?
The Saudis?
The driller?

Lets start there

Well, nothing is a "stupid question" when prefaced with "another stupid question."

The simple answer is that the market forces of supply and demand divide up the profits all up the vertical supply chain and across the horizontal markets that compete for the consumer's wallet. How those profits are divided depends on the balance of market forces. We can pretty much conclude that the DVD market does not get as much profit as the energy, medical, and food product markets.

Estimated 2012 Gasoline Price Breakdown & Margins Details has a list, with prices, of the vertical supply chain for gasoline.

I cannot find "speculators" in that list, though they are surely in there somewhere. They are in "crude oil cost", if I am to understand things correctly. Speculated oil sits in tankers off the coast, waiting for prices to rise.

All that said, I got more interested in the supply and demand diagram when it comes to market inefficiencies. Profits are the indication of market inefficiency and market leverage.

Typically, if a vertical market, like petroleum, has high market leverage, the entire vertical market shares in those profits. The consumer, balancing their needs between products, pays at their willingness to pay. We need food to survive, we need gasoline to get to work to buy food. What we are willing to pay for each is a bit of a tug of war between the gasoline market and the food market.

So, here is my contribution.


The Not So Perfect Market, Supply and Demand Diagram.

Micro economics fundamentals is based on the concept of perfectly competitive markets with perfect information and no barriers to entry. In micro economics, a generalized supply and demand diagram is presented with generalized supply and demand curves. Where the curves intersect defines the market equilibrium point, the market price and quantities for both the suppliers and consumers.

This concept of supply and demand for perfectly competitive markets gives us some idea of how markets function. It provides us with a basis for some greater intuitive understanding of the markets.

For those not familiar, the typical supply and demand curve is shown here.

For a description of this diagram, readers might wish to examine this article on supply and demand. Supply and demand - Wikipedia, the free encyclopedia

Unfortunately, there are few ideal markets. In fact, all markets are not perfectly competitive as all markets are not perfectly efficient. Many markets have inefficiencies that are minor. Even the price of bread at the grocery store is not based on a perfectly efficient market. Generally, we are unconcerned with markets that are nearly perfect. We are typically concerned with markets that are very inefficient, for whatever reasons.

To get a better understanding of how a real market functions, it might help to have a supply and demand diagram that highlights the significant features of market inefficiencies. The diagram below captures the effects of market inefficiencies.

We want a picture that is worth as many words as possible, without being overwhelming. So the graph above has been crafted to capture as much of what really happens in the market. I have added a bit more information, a bit more context, then the typical S-D presentation. Where the typical S-D presentation is based on "all other things considered equal", a perfectly competitive market with perfect information and no barriers to entry.

I am taking a couple of those things and presenting how the curves are if they are not equal. I am expanding this a bit, to allow for some consideration of how the real markets perform because real markets are not perfectly competitive with perfect information and no barriers to entry. In real markets, there are inefficiencies that make some things not exactly equal.

These things are a few details that we do typically consider. We do consider supplier costs and profits. Supplier costs are a real constraint on the supply curve but the supply curve is not always just costs. The difference is profit. For the sake of some symmetry, as we are considering supplier profit, we might just as well consider consumer "savings".

The actual market supply and demand curves are presented in a thick solid line. Thick and solid was chosen to emphasize that these are the final resting points of the market, after all is considered and has settled out.

"D-max (willingness to pay)" is the absolute maximum that the consumer can possibly pay, given all needs. We should keep in mind this is the market aggregate (average). Some individual consumers will have a higher income, drive an efficient car, and would be willing to pay more, but they simply don't have to because prices are marked. Some individual consumers are barely scrapping by and are at the very edge of their willingness to pay. There are other factors that affect how this curve comes to realization. There are consumers that simply cannot afford to purchase at that particular price, given the quantity, so at any particular quantity-price, the actual number of consumers is not necessarily the same. Combined, the aggregate of all the consumers sets the aggregate demand curve. All things being considered, this thick solid line represents the upper boundary of price given that the consumer simply will not and cannot pay more. If the price were any higher, the consumer would simply walk away and find something else to do with their money.

"S-min (cost)" is the absolute minimum that the supplier can possibly sell for, given all manufacturing costs. We should keep in mind this is also a market aggregate (average). Some suppliers will have lower costs, like the service station that is located further away from the freeway has lower cost of rent. We can consider many factors that will affect individual supplier costs. There are many factors that affect how this curve comes to realization. In the aggregate, the supply curve represents the absolute minimum for the average price in the market. All things considered, this thin solid like represents a lower boundary of price, given that the supplier simply will not and cannot sell for less. Below it, the supplier would simply shut down because they would be losing money. We know, without any reason to consider otherwise, that there is a definable minimal cost curve for the supplier.

"S-market" is the actual price that the supplier can command in the market given the consumers willingness to pay. This becomes a significant difference between the simpler (and still correct) S-D presentation. S-D curves are typically presented as being entirely independent. We know, of course, that this isn't absolutely correct. There is some interaction between the supplier and the buyer, the price being a bit of a negotiation. We know that, clearly, the market supply curve is not necessarily the same as the supplier cost curve.

"D-market" is "D-max (willingness to pay)". The market demand curve is always ways the consumers willingness to pay.

"S-preferred" and "D-preferred" represent what the curves might be if all other things were not equal, if the suppler or the consumer curves were not at their absolute lower and upper boundaries. This range, the movement that the S and D curves might make, is constrained by the upper and lower boundaries and by the actual market curves. Clearly, if willingness to pay were less, then the market curve for the supplier would be lower. The suppliers "preferred" range would be less. If the supplier cost curve were higher, then the range of for the consumers demand curve would be less. "S-preferred" and "D-preferred" represent a family of curves that range from the upper and lower boundaries. These do not really exist. They give us some context for for the boundaries and market curves.

In a perfectly competitive market with perfect information and no barriers to entry, the range is zero. In a perfectly competitive market, the supplier market curve collapses to the cost curve and the consumers demand curve collapses with it.

In the not so perfect markets, there is a definitive symmetry to the supply and demand curves. Each has a boundary, one upper and one lower. There is savings and profit, symmetrical concepts, on each side. There is an absolute market curve for each.

There is also some lack of symmetry. The lower boundary for each is defined by the supplier's cost curve. The upper boundary is defined by the consumers willingness to pay. The actual market curves are both at the upper boundary, not at the lower boundary. It is not the supplier's cost curve that defines the market price, it is the consumer's willingness to pay.

As the market becomes more efficient, closer to perfectly competitive, with better information and no barriers to entry, then the range shrinks. With this, the suppler curve collapses to the cost curve and the demand curve collapses to intersect with suppler cost curve.

This is the supply and demand curve that we are use to. For a perfect market, the suppliers cost curve and the consumers willingness to pay defines the equilibrium point. This does not describe the typical market, but gives us an ideal with which to compare the real world markets.

In real markets, there are profits and inefficiencies. Every market has, to some small degree, inefficiencies. Consider just a local business doing landscaping. The local market will have a few contractors. They have a reputation and that reputation affords them preference over anyone that might wish to enter the market.

On a larger national scale, market inefficiencies become more apparent. The most most powerful form of market inefficiency are economies of scale and barriers to entry. Economies of scale become a barrier to entry when the market becomes dominated by a monopoly. Monopolies wields the greatest market leverage of all market inefficiencies, able to control market supply and maximize prices and profits.

In fact, it is profits that identify that a market is not efficient. The petroleum and gasoline markets proved those in the supply chain with considerable market leverage simply because the product is so important. Consumers and businesses alike are dependent upon energy. Every supplier, all the way up the supply chain, from the service station to Canada and Mexican crude oil suppliers. (Service stations, themselves, make very little, compared to other supplies in the vertical supply chain. Within the market, service stations do not have much leverage.)

Because the OP referred to "the Saudis", I present the data for crude oil suppliers to the US. Saudi Arabia is but a smaller part of the US total imports.

 

[itfitzme]

So if I make 1 million dollars profit in the US
and I send those profits to an off shore account
I will never have to pat taxes on it?

If you can claim the income is to an off-shore partner or subsidiary, or if you can on-paper expense income to said entity, you won't have pay taxes on it. I didn't say anything about an off-shore account.

While they were recording record profits last year, they were also writing checks to Uncle Sam to the tune of $100.7 billion -- two and a half times what they made in net profit. In fact, previous Tax Foundation research found that from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today's dollars, that's $2.2 trillion.

Are you claiming that oil companies pay a 250% ("two and a half times what they made in net profit") tax rate, not 8%? That $100.7 billion figure is bogus, and your link doesn't tell where the number comes from (it does, but their link is dead).

Oh, gas "taxes at the pump" are taxes on the oil companies? I think that's taxes on consumers.

Yes, taxes at the pump are taxes on the oil companies.

The price at the pump is the maximum that the consumer is willing to pay. It clearly is not based on production costs, because it includes profit. It is cost plus profit.

Removing the taxes, wouldn't reduce the consumer's willingness to pay. That is dependent on what other things cost and how badly the consumer needs the product.

Removing the taxes would simply increase the profit. "Taxes at the pump" are taxes on the oil companies profits, not on the consumer's wallet.

 

[itfitzme]

Another stupid question on speculators

Back a few years ago, there was this destructive hurricane named Katrina that plowed through the gulf and into Louisiana. One side effect of that hurricane was that some oil drilling in the gulf was halted and so was a lot of refining of oil in Louisiana. The price of gas in the southeastern USA was rising multiple times a day. Not only that, the supply of gas was in question. I saw people at gas stations not only filling their car with gas, but they were also filling any gas cans they had, just in case they couldn't get gas tomorrow or next week.

These were ordinary people, not wall street big-wigs, but they were speculating just the same, just on a smaller scale, but the impact was the same. That activity exacerbated the price increases.

It is investing, saving product for future consumption.

That concept is fine for consumables, like oil and grain. I don't think it works well for durable goods, like single family homes. They are inherently being "saved", they are durable. It would be nice if we could better separate the speculation from the consumption. The problem seems to get bad when speculators are driving the price that other speculators are willing to pay. It gets a bit disconnected from the consumption market.

What your story reminded me of is when one of the local major factory bakeries closed. The price of bread sold by the other major local factory bakery doubled. Their costs did not double, that was all an increase in profit. A decrease in supply, competition in particular, results in a major increase in profit to the other supplier as market leverage increases.

 

[JRK]

So if I make 1 million dollars profit in the US
and I send those profits to an off shore account
I will never have to pat taxes on it?

If you can claim the income is to an off-shore partner or subsidiary, or if you can on-paper expense income to said entity, you won't have pay taxes on it. I didn't say anything about an off-shore account.

While they were recording record profits last year, they were also writing checks to Uncle Sam to the tune of $100.7 billion -- two and a half times what they made in net profit. In fact, previous Tax Foundation research found that from 1977 to 2004, federal and state governments extracted $397 billion by taxing the profits of the largest oil companies and an additional $1.1 trillion in taxes at the pump. In today's dollars, that's $2.2 trillion.

Are you claiming that oil companies pay a 250% ("two and a half times what they made in net profit") tax rate, not 8%? That $100.7 billion figure is bogus, and your link doesn't tell where the number comes from (it does, but their link is dead).

Oh, gas "taxes at the pump" are taxes on the oil companies? I think that's taxes on consumers.

Yes, taxes at the pump are taxes on the oil companies.

The price at the pump is the maximum that the consumer is willing to pay. It clearly is not based on production costs, because it includes profit. It is cost plus profit.

Removing the taxes, wouldn't reduce the consumer's willingness to pay. That is dependent on what other things cost and how badly the consumer needs the product.

Removing the taxes would simply increase the profit. "Taxes at the pump" are taxes on the oil companies profits, not on the consumer's wallet.

Oil companies pay 0 taxes
not one company in this country pays taxes
People pay taxes

When the market sets a price for a gallon of fuel, tax burden is built in the final price

If a corporation forecasts profit that results in a 20% tax burden, the that fuel will go to that level to cover that expense

There is no monies except those the consumer provides. When BHO talks of a windfall tax on Exxon, he is just going after your money and he knows that

 

[starcraftzzz]

really? pennies huh?
Motiva completes Port Arthur refinery expansion, becomes largest in US | Hydrocarbon Processing | April 2012
The startup is among the finishing touches on a 5-year expansion project that cost approximately $7 billion.

Over 10 years, that works out to about 15 cents per gallon (at peak capacity) for the expansion. That expansion will run for decades. If the expansion runs 50 years, that's 3 cents per gallon. And, that makes it one the most expensive refineries per gallon in the country. The original refinery was build in 1902.

About ten years ago, gas cost about $1.35/gallon at the pump. So, unless you think everyone is as stupid, you know we know that all costs combined, to bring gas from the ground to the pump, other than the market premium (of pure profit), has to be below $1.35 (plus what little inflation there has been). Even at a $1.35, the oil companies were making $billions in profits.

gas was 1.85 a gallon when BHO took office
And yes oil companies makes billions in profit

So the question is "how can gas prices go from 1.85 to 3.5 in 3-4 years despite
record increases in oil production/refining in America?

 

[JRK]

People who have no respect for the mentally challenged in this great country will be ignored by me ZZZ, go away
no one cares about people who conduct them selves as you do. I am being sincere when I say I feel sorry for you right now
You cannot go through life treating people and making statements about people like you have
It is time to grow up

 

[itfitzme]

If you can claim the income is to an off-shore partner or subsidiary, or if you can on-paper expense income to said entity, you won't have pay taxes on it. I didn't say anything about an off-shore account.



Are you claiming that oil companies pay a 250% ("two and a half times what they made in net profit") tax rate, not 8%? That $100.7 billion figure is bogus, and your link doesn't tell where the number comes from (it does, but their link is dead).

Oh, gas "taxes at the pump" are taxes on the oil companies? I think that's taxes on consumers.

Yes, taxes at the pump are taxes on the oil companies.

The price at the pump is the maximum that the consumer is willing to pay. It clearly is not based on production costs, because it includes profit. It is cost plus profit.

Removing the taxes, wouldn't reduce the consumer's willingness to pay. That is dependent on what other things cost and how badly the consumer needs the product.

Removing the taxes would simply increase the profit. "Taxes at the pump" are taxes on the oil companies profits, not on the consumer's wallet.

Oil companies pay 0 taxes
not one company in this country pays taxes
People pay taxes

When the market sets a price for a gallon of fuel, tax burden is built in the final price

If a corporation forecasts profit that results in a 20% tax burden, the that fuel will go to that level to cover that expense

There is no monies except those the consumer provides. When BHO talks of a windfall tax on Exxon, he is just going after your money and he knows that

You are absolutely incorrect. And I challenge you to demonstrate or prove by deduction your conclusion.

I can demonstrate, through fundamental, by deduction, that the tax burden is entirely on the suppliers for gasoline sales.

For some product, the tax burden is split, by some proportion between the buyer and the seller. For the product, the tax burden is more fully on the buyer.

That corporations forecast profits has nothing to do with the determination as to whether the burden of taxes is on them. All that forecast is, is what they can manage go charge, what the consumers willingness to pay is.

Every day, the refineries get the total sales volume from the service stations. Every morning, the service stations call the corporate office for the price to set at the pump. The refineries have a team of economists and a complex computer model that forecasts demand and determines pricing. The price is set to maximize earnings before taxes (EBT).

Profits are after taxes and are a percentage of earnings. The more the earnings, the more the profits, regardless of what the taxes are.

Profit = (1-t) * EBT

EBT = Revenues minus total costs.

If you like, EBT = quantity * ( Price - variable costs) - fixed costs.

Price is determined based on the consumers willingness to pay which is a function of the quantity purchased.

Taxes are not a cost of production.

In the end, the taxes does not effect the decision. This is standard business math that every economics and business professional knows, including those that work the pricing models at the refineries when they determine the day to day pricing at the pump.

I will gladly entertain any reasonable considerations that are based on the fundamentals of business and economics.

More simply, an increase in taxes, whether at the pump, on storage, or on the refinery earnings does not effect the consumer's price because the consumer is already paying as much as they can pay, as much as they are willing to pay. The pump price is set daily, to the maximum amount that the consumer can possibly pay.

No matter how we go at it, the taxes are a burden on the petroleum product suppliers, not on the final gasoline purchaser.

I cannot say it more plainly then you are wrong and you have no reasonable foundation for your conclusion. You need to rethink your consideration, starting from the fundamentals.

 

[itfitzme]

For companies that are not making anything significant that can be considered profit, in terms of actual profit or high CEO salaries or bonuses, like the local mini market owner, then an increase in taxes is partly passed on to the consumer.

The effect of a tax depends on if it is the same across all products or if it is specific to a particular product.

If it is common across all products, in real dollar terms, it has no effect. If all companies pay the same additional tax, while the nominal dollar increase gets divided up between the consumer and the supplier, depending on other factors, the real dollar effect is zero. Instead, the money supply increased to account for the additional nominal change in prices.

The following differences apply only if the tax is an increase to only the specific product or market identified.

For commodities that are highly competitive but have little market leverage, like bleach, an increase in taxes is partly passed on the the consumer. Typically, the increase is split between the supplier and the consumer. The exact proportion of the split depend on the balance of market forces that affect both the consumer and the supplier. What it really comes down to is the elasticity of demand.

Product which are highly inelastic, for which a change in price does not have a great effect on the quantity purchased, a larger portion of the tax will be absorbed by the consumer. Cigarettes and alcohol are highly inelastic, or at least was until California really cranked up the taxes on cigarettes. When the tax is applied, like an excise tax, then there is a burden to the consumer.

For products that are highly elastic, the proportion that is absorbed by the consumer is less. DVD sales, for instance, are not a consumer necessity. They also have low profits because they are not such a necessity. An excise tax of DVD sales, a ridiculous concept, would get split between the consumer and the supplier. DVD sales would also drop. And in the balance, the tax would manage to get split between the remaining consumers and any DVD suppliers that managed to survive the tax.

The entire balance of the proportional split between the supplier and the consumer is dependent on numerous factors including; price elasticity, product necessity, how the tax is applied, and supplier earnings.

For gasoline, a product that has high profits, is of high necessity, and is fairly inelastic compared to the average product, the tax is absorbed by the supplier, the vertical supply chain, cutting into profits.

This is especially true in areas where public transportation costs as much as driving one's own car.

It is important to recognize that demand quantity does not fall or rise in exact proportion to the change in price. The total revenue, price times quantity is not constant. There is a sweet spot for price where quantity times price is maximum. At a higher price, quantity falls faster the price rises. As a lower price, the increase in quantity does not offset the decrease in price.

Refineries could reduce prices to attract more customers away from public transportation. But the increased sales does not offset the decrease in price. As such, they set price to maximize price times quantity, total revenue. More precisely, they set price to maximize earnings, price times quantity minus total costs. Taxes are on earnings, a percentage. Profits are maximized by maximizing earnings and taxes never comes into the decision.

A company that makes no earnings, that charges only what the product costs, including wages and salaries, there are no taxes. Taxes are on earnings and zero earnings is zero taxes.

Taxes are not a cost of production. They are a percentage of earnings. If there are no earnings, there are no taxes.

When all suppliers are subject to the same tax, there is no real effect. Prices and the money supply adjusts to account for the additional tax. In the long run, output is maximum and consumption is maximum. As such, it doesn't matter what the tax is, not to the consumer and not to the supplier.

It is that simple.

 

[starcraftzzz]

People who have no respect for the mentally challenged in this great country will be ignored by me ZZZ, go away
no one cares about people who conduct them selves as you do. I am being sincere when I say I feel sorry for you right now
You cannot go through life treating people and making statements about people like you have
It is time to grow up

If your going to cry then dont cry in front of everyone. And it fact I have a lot of respect for the mentally disabled a lot more then for you because they are disabled for a reason while you choose to be a retard

 

[itfitzme]

Over 10 years, that works out to about 15 cents per gallon (at peak capacity) for the expansion. That expansion will run for decades. If the expansion runs 50 years, that's 3 cents per gallon. And, that makes it one the most expensive refineries per gallon in the country. The original refinery was build in 1902.

About ten years ago, gas cost about $1.35/gallon at the pump. So, unless you think everyone is as stupid, you know we know that all costs combined, to bring gas from the ground to the pump, other than the market premium (of pure profit), has to be below $1.35 (plus what little inflation there has been). Even at a $1.35, the oil companies were making $billions in profits.

gas was 1.85 a gallon when BHO took office
And yes oil companies makes billions in profit

So the question is "how can gas prices go from 1.85 to 3.5 in 3-4 years despite
record increases in oil production/refining in America?

The first, and most obvious question is what is it in real dollar terms? Inflation increases prices.

That said, in real dollar terms, using Feb 2012 as the base year, it went from R$1.72 in Dec, 2008, to it's current price of R$3.64. As a reference, in Feb of 2002, it was R$1.39, a real dollar price that it had been at since 1990. It increased, from Feb 2002 to R$4.19 in Jun '08, when the price collapsed to that Dec, 2008 value of R$1.72.

Better in a table

Mar 1991 R$1.77
Feb 2002 R$1.39
Jun 2008 R$4.19
Dec 2008 R$1.72
Feb 2012 R$3.64

(A side note, gasoline prices are showing a seasonal variability, falling in the winter and rising in the summer, along with a steady upward trend.)

The second obvious thing, having now looked at the US Average for Regular petroleum is that is is a sign of recovery from the recession. Demand has increased and if anything will increase first, it would be demand for fuel. Since the recession, consumption has fallen massively.

Now that we are past the real dollar and recovery answers, along with the seasonal thing, we get to the question, which remains and is a valid question because we have taken care of the real dollar seasonal stuff.

The question is really two parts that are similar and can be stated together.

Why did gasoline pump prices increase so remarkably, after over a decade of stable real dollar prices, in the two time periods of 2002 to 2008 and 2008 to 2012? The first time period may mark the build up to the recession and the second period is in the recovery after the recession.

The general answer is supply and demand. The more specific and foremost answer is demand. The gasoline market is dominated by a few large companies, refineries. In order to have a perfectly competative free market, the market must have at least thirty suppliers, not a half dozen or less.

These refineries, Chevron, Exxon, BP, 76, etc. have economies of scale and major barriers to entry. They are ologopolies. And the pricing model for ologopolies is a published standard that any graduate economics student is well aware of. It is the Carnot ologopoly equilibrium.

These refineries not only know how to properly price given the known number of market competitors, but they also know exactly how to price given the demand. They know exactly what the daily sales are for every station in every region across the U.S. They set the pump price for each service station that they supply. They higher economist from Harvard and MIT. They have sophisticated pricing models run on massive computer systems that crunch the numbers and determine exacly what the best price should be, the best quantity to sell, and how much to pay for crude oil. They have the most market leverage both downstream and upstream.

As R. Preston McAfee explains, "Economic analysis is used in many situations. When British Petroleum sets the price for its Alaskan crude oil, it uses an estimated demand model, both for gasoline consumers
and also for the refineries to which BP sells. The demand for oil by refineries is governed by a complex economic model used by the refineries and BP estimates the demand by refineries by estimating the economic model used by refineries."

In testimony to Congress, the CEOs of the major refineries explained that it was supply and demand that set the pump price. And they were being quite honest. But, what they did not point out is that they are the supply and the demand price is as much as the consumer can possibly pay without demand falling enough to cause profits to fall.

In short, the reason prices have gone up is simply because they can.

 

[itfitzme]

The annoyance, and I do it all the time, is forgetting to distinguish between micro and macro economics. Micro economics examines the effect on a single product, a single market, all other markets being constant. Macro economics examines the effect of the entire economy.

Taxes, federal taxes are a macro economic issue. Corporate taxes apply across all markets equally.

Certain more specific taxes, like excise taxes, apply to specific markets.

State taxes apply to a subset of the economy, the state. They affect the State economy as a macro market within the state yet affect the State economy as a micro-market within the larger national economy. That makes it annoying.

 

[JRK]

Yes, taxes at the pump are taxes on the oil companies.

The price at the pump is the maximum that the consumer is willing to pay. It clearly is not based on production costs, because it includes profit. It is cost plus profit.

Removing the taxes, wouldn't reduce the consumer's willingness to pay. That is dependent on what other things cost and how badly the consumer needs the product.

Removing the taxes would simply increase the profit. "Taxes at the pump" are taxes on the oil companies profits, not on the consumer's wallet.

Oil companies pay 0 taxes
not one company in this country pays taxes
People pay taxes

When the market sets a price for a gallon of fuel, tax burden is built in the final price

If a corporation forecasts profit that results in a 20% tax burden, the that fuel will go to that level to cover that expense

There is no monies except those the consumer provides. When BHO talks of a windfall tax on Exxon, he is just going after your money and he knows that

You are absolutely incorrect. And I challenge you to demonstrate or prove by deduction your conclusion.

I can demonstrate, through fundamental, by deduction, that the tax burden is entirely on the suppliers for gasoline sales.

For some product, the tax burden is split, by some proportion between the buyer and the seller. For the product, the tax burden is more fully on the buyer.

That corporations forecast profits has nothing to do with the determination as to whether the burden of taxes is on them. All that forecast is, is what they can manage go charge, what the consumers willingness to pay is.

Every day, the refineries get the total sales volume from the service stations. Every morning, the service stations call the corporate office for the price to set at the pump. The refineries have a team of economists and a complex computer model that forecasts demand and determines pricing. The price is set to maximize earnings before taxes (EBT).

Profits are after taxes and are a percentage of earnings. The more the earnings, the more the profits, regardless of what the taxes are.

Profit = (1-t) * EBT

EBT = Revenues minus total costs.

If you like, EBT = quantity * ( Price - variable costs) - fixed costs.

Price is determined based on the consumers willingness to pay which is a function of the quantity purchased.

Taxes are not a cost of production.

In the end, the taxes does not effect the decision. This is standard business math that every economics and business professional knows, including those that work the pricing models at the refineries when they determine the day to day pricing at the pump.

I will gladly entertain any reasonable considerations that are based on the fundamentals of business and economics.

More simply, an increase in taxes, whether at the pump, on storage, or on the refinery earnings does not effect the consumer's price because the consumer is already paying as much as they can pay, as much as they are willing to pay. The pump price is set daily, to the maximum amount that the consumer can possibly pay.

No matter how we go at it, the taxes are a burden on the petroleum product suppliers, not on the final gasoline purchaser.

I cannot say it more plainly then you are wrong and you have no reasonable foundation for your conclusion. You need to rethink your consideration, starting from the fundamentals.

I mean no dis respect, but you have so much to learn. I run business
Ask your self one simple question, does Exxon have a printing machine?
The end user pays for every-thing
When I bid work it will roll up into lump sums

Man hours by discipline for workers comp as an example
Within that roll up will be a bid profit and contingency
Each month each project will within our company will forecast cost, therefore will forecast the 3 most important things for that monthly/1/4 forecast
Cost
Cash flow
Profit

When we build a power plant, the owner will pay us
he will be doing the same
as that cost trickles down and is rolled up with other expenses such as coal, labor etc... they will know what to charge for each unit of power they charge the consumer, this includes a profit
With-in that profit they can and DO calculate there tax burden, which will allow them to plan expansion or a re adjustment one way or the other to maintain that 8% profit as Exxon does

simply put when you purchase a unit of power, your paying for everything including there taxes, same with Exxon
That 3.50 per gallon has that 8% profit with-in it and within that profit they know each 1/4 what to pay uncle sam

These events are what brought us Sarbanes Oxley and destroyed Enron and the 100s of others who were doing the same, lying about there profit (loss) as there activities were rolled up
AIG made huge profits in there life insurance sector in 2008, but there ins on mortgage securities broke them in weeks

Simply put every gallon of fuel pays for much of what Exxon does
when YOU buy that fuel, you are the end user

I have a thread on this matter

 

[JRK]

http://www.usmessageboard.com/politics/191846-corporations-pay-no-taxes.html

 

[itfitzme]

Oil companies pay 0 taxes
not one company in this country pays taxes
People pay taxes

When the market sets a price for a gallon of fuel, tax burden is built in the final price

If a corporation forecasts profit that results in a 20% tax burden, the that fuel will go to that level to cover that expense

There is no monies except those the consumer provides. When BHO talks of a windfall tax on Exxon, he is just going after your money and he knows that

You are absolutely incorrect. And I challenge you to demonstrate or prove by deduction your conclusion.

I can demonstrate, through fundamental, by deduction, that the tax burden is entirely on the suppliers for gasoline sales.

For some product, the tax burden is split, by some proportion between the buyer and the seller. For the product, the tax burden is more fully on the buyer.

That corporations forecast profits has nothing to do with the determination as to whether the burden of taxes is on them. All that forecast is, is what they can manage go charge, what the consumers willingness to pay is.

Every day, the refineries get the total sales volume from the service stations. Every morning, the service stations call the corporate office for the price to set at the pump. The refineries have a team of economists and a complex computer model that forecasts demand and determines pricing. The price is set to maximize earnings before taxes (EBT).

Profits are after taxes and are a percentage of earnings. The more the earnings, the more the profits, regardless of what the taxes are.

Profit = (1-t) * EBT

EBT = Revenues minus total costs.

If you like, EBT = quantity * ( Price - variable costs) - fixed costs.

Price is determined based on the consumers willingness to pay which is a function of the quantity purchased.

Taxes are not a cost of production.

In the end, the taxes does not effect the decision. This is standard business math that every economics and business professional knows, including those that work the pricing models at the refineries when they determine the day to day pricing at the pump.

I will gladly entertain any reasonable considerations that are based on the fundamentals of business and economics.

More simply, an increase in taxes, whether at the pump, on storage, or on the refinery earnings does not effect the consumer's price because the consumer is already paying as much as they can pay, as much as they are willing to pay. The pump price is set daily, to the maximum amount that the consumer can possibly pay.

No matter how we go at it, the taxes are a burden on the petroleum product suppliers, not on the final gasoline purchaser.

I cannot say it more plainly then you are wrong and you have no reasonable foundation for your conclusion. You need to rethink your consideration, starting from the fundamentals.

I mean no dis respect, but you have so much to learn. I run business
Ask your self one simple question, does Exxon have a printing machine?
The end user pays for every-thing
When I bid work it will roll up into lump sums

Man hours by discipline for workers comp as an example
Within that roll up will be a bid profit and contingency
Each month each project will within our company will forecast cost, therefore will forecast the 3 most important things for that monthly/1/4 forecast
Cost
Cash flow
Profit

When we build a power plant, the owner will pay us
he will be doing the same
as that cost trickles down and is rolled up with other expenses such as coal, labor etc... they will know what to charge for each unit of power they charge the consumer, this includes a profit
With-in that profit they can and DO calculate there tax burden, which will allow them to plan expansion or a re adjustment one way or the other to maintain that 8% profit as Exxon does

simply put when you purchase a unit of power, your paying for everything including there taxes, same with Exxon
That 3.50 per gallon has that 8% profit with-in it and within that profit they know each 1/4 what to pay uncle sam

These events are what brought us Sarbanes Oxley and destroyed Enron and the 100s of others who were doing the same, lying about there profit (loss) as there activities were rolled up
AIG made huge profits in there life insurance sector in 2008, but there ins on mortgage securities broke them in weeks

Simply put every gallon of fuel pays for much of what Exxon does
when YOU buy that fuel, you are the end user

I have a thread on this matter

You may run a business, but that doesn't make you any "smarter" then anyone else. There are 7.7 million businesses in this country, a large portion of those being single proprietor ships. Nor do you know, on this forum, who has and hasn't run a business or what anyones education is. All you get is what they present. My sense is that you infer that somehow, you are so much more smart because you, as you say, owned a business. Big deal. I suggest that your ego has you convinced you have nothing to learn.

Ask yourself one simple question, does the consumer have a printing machine?

The business pays all wages.

You are making an artificial distinction by taking the circular flow of money and saying "it starts here".

The only question is if taxes are raised on refineries, would they raise the price of gasoline?

Regardless of the calculation of the tax burden, and how that will affect their future expansion, it doesn't affect the decision as to what the price is.

I suggest that your ego is getting in the way of your learning.

I couldn't care less about "respect". You either have a sound point or you do not.

Taxes are not automatically passed on to the consumer in terms of a real increase in prices.

Exxon gets to pay for what it does given the amount of fuel they sell.

That 8% profit exists because they are able to get $3.50 a gallon.

I couldn't care less about your thread. You are clearly wrong. I address what you present. You continue to present that same worn out material without addressing what is presented.

 

[itfitzme]

http://www.usmessageboard.com/politics/191846-corporations-pay-no-taxes.html

Here is the real dollar pump price for regular gasoline, US average, from 1990 through 2012.

Is it your contention that the price rose steadily from 2002 through the beginning of the recession because taxes increased steadily, only to collapse on the recession because taxes fell, then to rise again because taxes again increased?

Or do you suppose that these changes had little to do with taxes, that the price increase is predominately independent of the taxes and for substantially other reasons?

The artificial distinction you are making is that the profits are only from an increase in price. The profits are the excess of earnings after taxes.

Increasing earnings increases profits. Earnings are based on sales volume times price minus costs. Earnings can be increased by either increasing price, increasing sales volume, or reducing costs. Your point is that it is only price that increases earnings. If this were true, then the refineries would simply raise price to $5 a gallon, yielding even higher profit.

They sure don't say, "Oh, we only need an 8% profit in order to meet future expansion, not a 9% profit, so were going to hold the price at $3.50, not $4.00".

(BTW, was that business of yours refining gasoline?)

 

[itfitzme]

Ask your self one simple question, does Exxon have a printing machine?
The end user pays for every-thing
When I bid work it will roll up into lump sums

Man hours by discipline for workers comp as an example
Within that roll up will be a bid profit and contingency
Each month each project will within our company will forecast cost, therefore will forecast the 3 most important things for that monthly/1/4 forecast
Cost
Cash flow
Profit

When we build a power plant, the owner will pay us
he will be doing the same
as that cost trickles down and is rolled up with other expenses such as coal, labor etc... they will know what to charge for each unit of power they charge the consumer, this includes a profit
With-in that profit they can and DO calculate there tax burden, which will allow them to plan expansion or a re adjustment one way or the other to maintain that 8% profit as Exxon does

simply put when you purchase a unit of power, your paying for everything including there taxes, same with Exxon
That 3.50 per gallon has that 8% profit with-in it and within that profit they know each 1/4 what to pay uncle sam

...

Simply put every gallon of fuel pays for much of what Exxon does
when YOU buy that fuel, you are the end user
...

In truth, it is businesses that have the "printing machine". They are called business loans. And business loans are taken out in order to expand business.

The way the money supply and the fractional reserve banking system functions, it is businesses that have the ability to take out the loans to increase the money supply.

Effectively, that is how money is printed. Profits are not necessary to expand the business.

When we build a power plant, the owner will pay us

Then, apparently, you are not selling direct to the consumer, but to other businesses.

And in the process of dealing with another business, clearly the price that is charged is not written in stone. The profit that you have determined that you must have is part of the negotiation (whether revealed or otherwise) with the business to which you are selling.

What you are doing is reporting a subjective perspective that does not describe the objective process.

If a business, that sells direct to the consumer, charges more than the consumer will bear, sales will fall off and with it revenues. If they charge less then the consumer is willing to pay, then while sales will increase, total revenues will fall as volume doesn't increase proportionally to the decrease in prices.

Revenues are maximized at the point where quantity times price peaks.

And Exxon either spends or saves every dollar collected.

None of this says anything about how much Exxon is able to charge for every gallon of fuel. Nor does it say anything about what Exxon is willing to pay for every barrel of oil that it purchases. Exxon can increase profits by both increasing price and by lowering costs.

The price of gasoline, the price of a barrel of oil is an interaction between they buyer and the seller. It is a negotiation, whether explicitly or in terms of the best guess of the posted price followed by an increase or decrease in demand.

In the end, Exxon prices gasoline at the maximum that they can charge without causing demand to fall off sufficiently to reduce revenues.

Simply put, Exxon pays for everything that it needs to, including taxes, out of all the revenues that it collects. While costs may set an absolute minimum price that must be charges, it does not set a maximum. The maximum is set by the upper limit of what the consumer is willing to pay. Exxon pays only so much as they are willing to pay for each barrel of oil. The price of a barrel of oil is not fixed, certainly not by production costs, or there would be no speculation.

The difference between a product like gasoline and a product like DVDs is market leverage. And the difference is everything in terms of whether the company is in a position to pull prices up or is forced to push costs down.

The price that a company can charge for DVDs is limited by the consumers expenses for fuel and food costs on one side and the cost of production, including fuel costs on the other side.

The industry of fuel production is as much a game of maximizing earnings as is playing the stock market. And part of that is maximizing earnings.

In the end, profits will be whatever can be gotten, whatever the market will bear.

I realize that your perspective is limited by your anecdotal experience.

-----

A more interesting question is why speculators even exist? If speculators are cutting into the profits for the refineries, why don't the refineries simply own the storage and speculation? What are speculators adding to the market, especially to the benefit of the refineries?

That was the point of the thread, isn't it, what speculators are for? If speculators are holding supply for future demand, why wouldn't the refineries? Is it specialization between storage and refining? Is it specialization in shipping that resulted in offshore storage? Any ideas how speculators are increasing market efficiency?

 

[JRK]

http://www.usmessageboard.com/politics/191846-corporations-pay-no-taxes.html

Here is the real dollar pump price for regular gasoline, US average, from 1990 through 2012.

Is it your contention that the price rose steadily from 2002 through the beginning of the recession because taxes increased steadily, only to collapse on the recession because taxes fell, then to rise again because taxes again increased?

Or do you suppose that these changes had little to do with taxes, that the price increase is predominately independent of the taxes and for substantially other reasons?

The artificial distinction you are making is that the profits are only from an increase in price. The profits are the excess of earnings after taxes.

Increasing earnings increases profits. Earnings are based on sales volume times price minus costs. Earnings can be increased by either increasing price, increasing sales volume, or reducing costs. Your point is that it is only price that increases earnings. If this were true, then the refineries would simply raise price to $5 a gallon, yielding even higher profit.

They sure don't say, "Oh, we only need an 8% profit in order to meet future expansion, not a 9% profit, so were going to hold the price at $3.50, not $4.00".

(BTW, was that business of yours refining gasoline?)

Bud your all over the place here, I cannot keep up with what ever it is your trying to say.
I have no idea what you are trying to say
Bonding, not loans drives my industry
Cash flow is as critical as profit
without the ability to be bonded for the work we do, you do not do it
Company X may have only 50 million dollars of assets, but there ability to be bonded for billions is the way they make capital
Look this discussion is way off of the point. Corporation pay for nothing, the consumer pays for everything
They purchase the stock, They purchase the product, they hire the service

Within that they pay the taxes
Refining fuel is no different than building a widget. If you have no idea what it cost to do either you will be out of business in weeks

Cash flow caused much of the problems we had in 08. AIG run out of cash

I hate to be short here but the truth is to simple to re butte to what ever your trying to say



I have not contended but one thing in this thread. Speculation 99% of the time is a product of the un known and it has nothing to do with a bunch of old white over weight cigar smoking fat cats running up the price of a product or service just to make more money
Stock Market? yes
Exxon? no