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> If the government says that for every dollar in revenue you have to pay 20 cents in taxes then Walmart will either raise prices by ~20% or require their suppl

> If the government says that for every dollar in revenue you have to pay 20 cents in taxes then Walmart will either raise prices by ~20% or require their suppliers to lower prices by ~20%. In no event do they go out of business, because their customers still need what their suppliers produce. You are assuming there is no elasticity here. People would stop working for walmart and go work for google, in this example, so yes, the tax would destroy walmart.

discodave 9y ago
This is nonsense. Unless Google opens thousands of "walk-in-distribution centers" close to consumers, or 100% of commerce moves online, then there will still be demand for what Walmart sells. Walmart sells essentials like food, clothes, and medicine. In what world does a consumer need an Android, or the internet, but not food.
- conanbatt 9y ago
  Some abstract thought here: the OP mentioned only 2 companies and I responded within that limitations, but in reality walmart competes with amazon. So if amazon has higher margins than Walmart because of the business model then walmart is disproportionately hit by the tax.
  - AnthonyMouse 9y ago
    > So if amazon has higher margins than Walmart because of the business model then walmart is disproportionately hit by the tax. Still not how that works. Suppose a knickknack costs $1 at Walmart. They pay their supplier $.50, $.47 is the cost of operating the store (rent, utilities, staff, etc.) and $.03 is profit. Amazon sells the same knickknack for the same $1 and buys it for the same $.50 but the cost of operating their store is only $.10 so they make $.40 profit. Now the government says they must both pay $.20. Suppose both the manufacturer and the customer are completely inelastic. They won't change their prices at all. Which store is at a disadvantage? You still don't know. It could be that Amazon needs higher returns to generate investment because online stores are higher risk. They have more competition and lower barriers to entry, their assets are heavily skewed toward goodwill and branding which are more susceptible to damage by scandal than e.g. real estate holdings, etc. It could be that if you cut their profits in half like that, they get no investors. Meanwhile Walmart has to come up with the $.20 out of their store operating costs, but those costs are an opportunity to cut something that Amazon doesn't have. They could improve the energy efficiency of their stores. They could lay off some greeters. They could renegotiate the lease on their stores against the fact that all other retailers will have to pay the same new tax, which reduces the market value of commercial rental property. There is no guarantee that Amazon is the one that comes out ahead.
    - conanbatt 9y ago
      > Meanwhile Walmart has to come up with the $.20 out of their store operating costs, but those costs are an opportunity to cut something that Amazon doesn't have. They could improve the energy efficiency of their stores. They could lay off some greeters. They could renegotiate the lease on their stores against the fact that all other retailers will have to pay the same new tax, which reduces the market value of commercial rental property. Walmart makes up for the difference profit margins with amazon because of volume. Reducing operating costs at pure profit is already at walmarts disposable: what they could do is reduce the quality of products (worse chain of supply, worse produce, worse items) which is in practical terms also a tax in consumers. They really are distorting.
      - AnthonyMouse 9y ago
        > Reducing operating costs at pure profit is already at walmarts disposable: what they could do is reduce the quality of products (worse chain of supply, worse produce, worse items) which is in practical terms also a tax in consumers. What you're missing is that the tax itself may give them leverage. If there is suddenly a 20% tax on retail goods then the cost of commercial properties may go down, because the retailers need to cut costs to cover the tax and the property owners will have no customers if the retailers go out of business, so it could be the property owners who end up eating some of the tax. They may have to lower rents enough to make retailing out of their space profitable. And the same for any other operating costs the retailers have. They may be able to pay lower wages because all retailers would have to do that in order to be profitable, so wages for retail employees go down across the board and the employees eat part of the tax. And the same applies to offering crappier service so that the customer eats some of the tax. It's possible for customers to prefer that to higher prices. And when the tax causes that to happen across the board, the customers may have no alternatives so the store may lose no business. Customers still need bread, now all the bread in every store either costs more or tastes worse, so the customer picks their poison and the store stays in business one way or the other. > They really are distorting. Oh, a tax really will affect two different businesses differently. But the distinguishing factor isn't the size of their margins. Profits are just a different type of cost -- the cost of raising investment capital. You may be able to get the investors to eat the tax, but they may also walk away, just like a customer or supplier might, and then you're just as out of business. The true distinguishing factor how easy it is to get some combination of involved parties to eat the total amount of the tax and still be willing to do business. In other words, whether the total surplus is more than the amount of the tax.
Buge 9y ago
How would walmart raising their prices by 20% cause their employees to go work for google? Why would google even give them job offers?
- conanbatt 9y ago
  If they raise their prices, people buy less, so profits are less, so its value as investment goes down, so it gets disinvested. Where would that money go? to any company with higher returns, in this case, Google.
  - AnthonyMouse 9y ago
    > If they raise their prices, people buy less, so profits are less, so its value as investment goes down, so it gets disinvested. Where would that money go? to any company with higher returns, in this case, Google. You're assuming that Google has higher returns. Higher margins doesn't inherently mean higher risk-adjusted returns. The higher margin company could be higher risk or have higher fixed up-front capital costs.
    - conanbatt 9y ago
      If it was in equilibrium before the tax, the addition of the tax would favor google.
      - AnthonyMouse 9y ago
        > If it was in equilibrium before the tax, the addition of the tax would favor google. If it was in equilibrium then they would both have the same margins. Something has to be different or everything is the same. And by far the most common reason for a company to have higher margins is that it has higher risk. Otherwise the investors would already be investing only in the business model that makes more money without any countervailing disadvantage whatsoever, regardless of the tax.
        conanbatt 9y ago

discodave 9y ago

This is nonsense. Unless Google opens thousands of "walk-in-distribution centers" close to consumers, or 100% of commerce moves online, then there will still be demand for what Walmart sells. Walmart sells essentials like food, clothes, and medicine. In what world does a consumer need an Android, or the internet, but not food.

conanbatt 9y ago
Some abstract thought here: the OP mentioned only 2 companies and I responded within that limitations, but in reality walmart competes with amazon. So if amazon has higher margins than Walmart because of the business model then walmart is disproportionately hit by the tax.
- AnthonyMouse 9y ago
  > So if amazon has higher margins than Walmart because of the business model then walmart is disproportionately hit by the tax. Still not how that works. Suppose a knickknack costs $1 at Walmart. They pay their supplier $.50, $.47 is the cost of operating the store (rent, utilities, staff, etc.) and $.03 is profit. Amazon sells the same knickknack for the same $1 and buys it for the same $.50 but the cost of operating their store is only $.10 so they make $.40 profit. Now the government says they must both pay $.20. Suppose both the manufacturer and the customer are completely inelastic. They won't change their prices at all. Which store is at a disadvantage? You still don't know. It could be that Amazon needs higher returns to generate investment because online stores are higher risk. They have more competition and lower barriers to entry, their assets are heavily skewed toward goodwill and branding which are more susceptible to damage by scandal than e.g. real estate holdings, etc. It could be that if you cut their profits in half like that, they get no investors. Meanwhile Walmart has to come up with the $.20 out of their store operating costs, but those costs are an opportunity to cut something that Amazon doesn't have. They could improve the energy efficiency of their stores. They could lay off some greeters. They could renegotiate the lease on their stores against the fact that all other retailers will have to pay the same new tax, which reduces the market value of commercial rental property. There is no guarantee that Amazon is the one that comes out ahead.
  - conanbatt 9y ago
    > Meanwhile Walmart has to come up with the $.20 out of their store operating costs, but those costs are an opportunity to cut something that Amazon doesn't have. They could improve the energy efficiency of their stores. They could lay off some greeters. They could renegotiate the lease on their stores against the fact that all other retailers will have to pay the same new tax, which reduces the market value of commercial rental property. Walmart makes up for the difference profit margins with amazon because of volume. Reducing operating costs at pure profit is already at walmarts disposable: what they could do is reduce the quality of products (worse chain of supply, worse produce, worse items) which is in practical terms also a tax in consumers. They really are distorting.
    - AnthonyMouse 9y ago
      > Reducing operating costs at pure profit is already at walmarts disposable: what they could do is reduce the quality of products (worse chain of supply, worse produce, worse items) which is in practical terms also a tax in consumers. What you're missing is that the tax itself may give them leverage. If there is suddenly a 20% tax on retail goods then the cost of commercial properties may go down, because the retailers need to cut costs to cover the tax and the property owners will have no customers if the retailers go out of business, so it could be the property owners who end up eating some of the tax. They may have to lower rents enough to make retailing out of their space profitable. And the same for any other operating costs the retailers have. They may be able to pay lower wages because all retailers would have to do that in order to be profitable, so wages for retail employees go down across the board and the employees eat part of the tax. And the same applies to offering crappier service so that the customer eats some of the tax. It's possible for customers to prefer that to higher prices. And when the tax causes that to happen across the board, the customers may have no alternatives so the store may lose no business. Customers still need bread, now all the bread in every store either costs more or tastes worse, so the customer picks their poison and the store stays in business one way or the other. > They really are distorting. Oh, a tax really will affect two different businesses differently. But the distinguishing factor isn't the size of their margins. Profits are just a different type of cost -- the cost of raising investment capital. You may be able to get the investors to eat the tax, but they may also walk away, just like a customer or supplier might, and then you're just as out of business. The true distinguishing factor how easy it is to get some combination of involved parties to eat the total amount of the tax and still be willing to do business. In other words, whether the total surplus is more than the amount of the tax.

Buge 9y ago

How would walmart raising their prices by 20% cause their employees to go work for google? Why would google even give them job offers?

conanbatt 9y ago
If they raise their prices, people buy less, so profits are less, so its value as investment goes down, so it gets disinvested. Where would that money go? to any company with higher returns, in this case, Google.
- AnthonyMouse 9y ago
  > If they raise their prices, people buy less, so profits are less, so its value as investment goes down, so it gets disinvested. Where would that money go? to any company with higher returns, in this case, Google. You're assuming that Google has higher returns. Higher margins doesn't inherently mean higher risk-adjusted returns. The higher margin company could be higher risk or have higher fixed up-front capital costs.
  - conanbatt 9y ago
    If it was in equilibrium before the tax, the addition of the tax would favor google.
    - AnthonyMouse 9y ago
      > If it was in equilibrium before the tax, the addition of the tax would favor google. If it was in equilibrium then they would both have the same margins. Something has to be different or everything is the same. And by far the most common reason for a company to have higher margins is that it has higher risk. Otherwise the investors would already be investing only in the business model that makes more money without any countervailing disadvantage whatsoever, regardless of the tax.
      - conanbatt 9y ago