[carboy]

Originally Posted by Chetan_Rao

If a corporation is handed extra money (via tax cuts or incentives) but they don't really see extra demand for what they sell, why would they invest the funds (in people and/or infrastructure) to ultimately create potentially dead inventory they may need to take losses on (both the investment and the inventory)?

Sure.

Originally Posted by Chetan_Rao

Why bother risking investing the money on the supply side that may or may not create extra demand (ergo the opportunity to generate profit after adjusting prices with whatever mechanism/model you think best), why not just pocket the money and profit directly (and hand out a few small 'bonuses' to quell any employee unrest)?

Sure.

Originally Posted by Chetan_Rao

Companies can, in theory

Sure. All I was debating is whether they can do it without the risk of decreasing profits other conditions being the same. I will copy/paste what I wrote earlier - Your profit after reduction of price, reduction of tax rate & reduction in demand will be the same as without reduction in price, without reduction of tax rate & **with** reduction of demand.

Originally Posted by Chetan_Rao

Tax cuts drive profits only in the sense they're free money, unless they come with investment obligations.

Yes, I was answering the comment which said that companies don't care about tax cuts. Which business wouldn't want free money?

[Chetan_Rao]

Originally Posted by carboy

.....Your profit after reduction of price, reduction of tax rate & reduction in demand will be the same as without reduction in price, without reduction of tax rate & **with** reduction of demand.....

You continue to overlook a critical aspect. Demand is not a direct economic input or consequence, it's complex. Look at Maruti, for example. People buy their products, which could be objectively inferior to competition, due to a variety of non-economic factors (brand affinity, peace of mind, risk averse nature, conservative tastes etc.). There are competing products that are often better and cheaper, but still don't sell anywhere as much. Price alone can't impact demand, so it's not as simple as 'give me a tax cut and I'll reduce prices'. In this example, it often translates to 'I reduced prices but nobody wants enough of what I'm selling, for me to make a profit'.

...companies don't care about tax cuts. Which business wouldn't want free money?

Tax cuts as an input cost of their business, you keep overlooking that point.

Everyone loves free money, but they sell what their consumers want, not what they can afford to produce at higher profits. If the two align, nothing like it, but it's not a given. It's like the discount sale joke I heard:

'Save 50% by taking this fabulous deal, save 100% by ignoring it!'

[Samurai]

Originally Posted by carboy

I thought your argument was that businesses don't think so much about tax cuts.

This is the second time you are claiming I said something I didn't say.

Originally Posted by carboy

Yes. And what Samurai said is that businesses don't care much about tax rates. Which means businesses don't care much about profits.

Hmm, care to quote that post? I looked back and didn't find it. I said I am not focused on it since I am in a private company. I prefer demand over tax cuts. However, I have mentioned that shareholders love it, and how it increases share prices. I have also mentioned that listed companies like it.

Here is the quote:

Originally Posted by Samurai

But yes, it affects the shareholders positively:
1) Less taxes means more dividend for shareholders.
2) Less taxes can also mean share buybacks, which increases share prices.

Listed companies like reduced taxes because it increases the market cap of the company, makes more cash available, etc.

So, can you please stop misquoting me?

Originally Posted by carboy

No wonder Bush41 called this as "Vodoo Economics"

Now you are misquoting Bush41 too. He was making fun of your favorite supply-side economics.

Originally Posted by carboy

Now your criticism is that it created a huge income inequity. If true, it would be because the businesses & business owners increase their profits.

If true? How do you explain last 30 years?

Listen, do you have any business experience? You are making theoretical arguments that have failed in massive scale after Reagan's experiment.

If someone brings up Milton Friedman next, same goes for him too. He has agreed on video he was wrong.

[carboy]

Originally Posted by Chetan_Rao

You continue to overlook a critical aspect.

I am overlooking it on purpose. Because it was not what was not what my debate with him. My debate was on 2 simple points I disagreed with. One, whether businesses care for tax cuts or not. Two, whether it's risky to lower price based on the tax cuts.

I wasn't debating at all whether this will increase demand or not.

[swissknife]

A friend of mine shared this video. While it is not surprising since it is from the Labour party, it does seem to hold water.

https://youtu.be/Kkow80xNBA0

[Chetan_Rao]

Originally Posted by carboy

I am overlooking it on purpose

To what end? Businesses don't exist without demand, of which pricing is only one aspect.

One, whether businesses care for tax cuts or not. Two, whether it's risky to lower price based on the tax cuts.

Since you apparently deal in absolutes, the answer to the first is YES for free money, NO for being an input cost to their business.

Answer to the second is IT DEPENDS. There isn't always a direct correlation between price & demand, so businesses won't change prices (upwards or downwards) just on taxation. I gave you two real-life examples that illustrate how pricing is also dependent on non-economic factors, so there is no YES/NO answer to 'whether it's risky to lower price based on the tax cuts'.

Economics doesn't work on absolutes but you insist on it, so I'll get my hat at this point.

Sharath & others on here are far better equipped to handle economics than I am.

[carboy]

Originally Posted by Chetan_Rao

To what end?

No end in itself. However, that's all the argument was about. The argument hadn't got into other stuff.

Originally Posted by Chetan_Rao

Since you apparently deal in absolutes, the answer to the first is YES for free money, NO for being an input cost to their business.

My "YES" was what it was being debated. If it was agreed with, then may be other aspects could be debated. But that itself was disagreed with.

Originally Posted by Chetan_Rao

Answer to the second is IT DEPENDS. There isn't always a direct correlation between price & demand, so businesses won't change prices (upwards or downwards) just on taxation.

Again, I am not debating whether businesses will reduce prices or not. It never got that far because the contention was that it's risky to reduce prices because it would reduce profits.

[Chetan_Rao]

Originally Posted by carboy

....

My "YES" was what it was being debated. If it was agreed with, then may be other aspects could be debated. But that itself was disagreed with.

I gave you the YES because you wanted an absolute answer, but absolutes don't work in economic theory. The YES could have plenty of anomalies once all factors are considered. Out of my league, but I'm sure you can find qualified economists to opine.

it's risky to reduce prices because it would reduce profits.

Price is just one factor, ergo just one risk involved in business. You're trying to draw a direct correlation between price and business/profit risk when one does not and cannot exist, because it's a multi-variable equation. 'Your premise is flawed', as my debate coach would say.

[carboy]

Originally Posted by Chetan_Rao

I gave you the YES because you wanted an absolute answer, but absolutes don't work in economic theory. The YES could have plenty of anomalies once all factors are considered.

Not really. Businesses care about tax cuts. That's an absolute.

Originally Posted by Chetan_Rao

Price is just one factor, ergo just one risk involved in business. You're trying to draw a direct correlation between price and business/profit risk when one does not and cannot exist, because it's a multi-variable equation.

Sure. But what was being debated was this - "The profit after reduction of price, reduction of tax rate & reduction in demand will be the same as without reduction in price, without reduction of tax rate & **with** reduction of demand" - which is an absolute.

Originally Posted by Chetan_Rao

'Your premise is flawed', as my debate coach would say.

"What you thought was my premise" is flawed. Not my actual premise itself.

[kiku007]

Originally Posted by Samurai

I don't closely follow the share market, since mine is a private company.

But yes, it affects the shareholders positively:
1) Less taxes means more dividend for shareholders.
2) Less taxes can also mean share buybacks, which increases share prices.

Listed companies like reduced taxes because it increases the market cap of the company, makes more cash available, etc. It doesn't reduce cost of product/services, so has no direct affect on demand.

Trump cut corporate tax from 35% to 21%, how did it help? He also reduced the demand for US goods by indulging in tariff war. It is the demand(lack of) that affected the US economy, negatively.

Thanks. This is good information.

The-Ken also had a good article on this topic,

https://the-ken.com/the-nutgraf/the-...dravid-option/

"Alright, alright. Here’s the main point:

If you are a large company, making a lot of money, and not claiming exemptions, the new rate is good for you. No brainer. Take it.
If you are a smaller company, making less money, and claiming exemptions, let’s say the effect is…marginal."

"In the case of a corporate tax cut, the corporate may or may not cut the price of its goods or services, and hence, the consumer is dependent on the corporate’s decision for his spending decision. This makes very clear which is the better option when it comes to getting the consumer spending going."

[Chetan_Rao]

Originally Posted by carboy

Not really. Businesses care about tax cuts. That's an absolute.

Just one use case scenario where the absolute doesn't hold. A tax reduction (or another regulatory incentive) that increases competition or worse, starts a race-to-the-bottom would be frowned upon by plenty of businesses.

Look at the Indian telecom sector. I'm oversimplifying of course (because taxation/regulation is just one aspect of it), but I'm sure plenty of incumbents would've loved to keep high entry barriers at the cost of a chunk of their profit, because a race-to-the-bottom scenario can often threaten their entire business model.

....The profit after reduction of price, reduction of tax rate & reduction in demand will be the same as without reduction in price, without reduction of tax rate & **with** reduction of demand" - which is an absolute.

No, it isn't. Even in the two combinations you quote, what happens to demand is not an absolute, so you're essentially working with a variable that doesn't track linearly. You're assuming purely economic and absolute factors (price, tax rate) can offset non-economic factors (demand, consumer sentiment) in a direct correlation. They don't.

"What you thought was my premise" is flawed. Not my actual premise itself.

Then, no offense, you really need to setup your premise better, because your premise really is all over the place. You're picking individual factors in an equation, and trying to gauge impact by introducing other factors, while ignoring a bunch of existing ones. Doesn't work that way.

[V.Narayan]

For those wondering about demand stimulation - I hear the MoF is seriously looking at trimming individual tax rates by roughly 5 percent. Details not known . Timing not known. It may come soon or effective next financial year.

[carboy]

Originally Posted by Chetan_Rao

snip

You are actually missing my whole point & you keep repeating the same thing over & over again & again even if I never disagreed with you - all I keep saying is that even if I agree with it, it's not relevant because my argument with Samurai had got stuck much earlier where some absolutes were being debated. But you keep missing that.


So I will stop here.

[Chetan_Rao]

Originally Posted by carboy

You are actually missing my whole point

Makes two of us, I guess. I do apologize for my lack of comprehension.

it's not relevant because my argument with Samurai had got stuck much earlier where some absolutes were being debated. But you keep missing that.

Seriously though, here's the flaw in your premise from your post a couple pages ago:

If you calculate the new lower price right, you will make up the difference between the earlier price and the new lower price.

The equation you demonstrated for adjusting price to retain profit margins is based on a post-facto number of units sold in a previous cycle, so D is constant when you run the calculation. Also, when you say you can calculate the future price based on units sold in the previous cycle to retain profitability, you're assuming D will continue to remain constant, or track positive. Possible but not a given.

In truth, to predict a future 'price' that helps retain profit margins, you'll need to swap that number with another that estimates 'demand', which is not constant because no business knows in advance exactly how many units (D) they'll sell in a given cycle, and that entire equation hinges on that parameter.

Essentially, you're taking one equation with a constant parameter D (units sold in a prior business cycle), then using it to calculate something for a future business cycle with that parameter now a variable, so your ideal future price to maintain profitability is now dependent on a variable you don't control. This will also impact your input costs, because you can't afford the same per unit cost if you're selling less volume, so you look to cut costs (both production and overheads). At some point, all parameters in that equation change based on the others. That's what Sharath meant when he said it looks like a simple equation, but it isn't.

Even if you somehow manage to retain per unit profitability, reduced demand (variable D) will knock down cumulative profit on sales volume, so you're still losing money overall compared to a higher demand cycle, while still making the same profit per unit, which will itself be temporary because you spent a certain amount on production and overheads assuming a certain sales volume, which has now changed so your calculation needs a rerun.

P.S. I realize Sharath already pointed this out, but doesn't hurt to repeat again!

[Samurai]

What happens when the government makes policy without proper study of the implication?

Here is a funny story from history, it is known as the cobra effect.

During the time of British rule of colonial India, the government became concerned that too many deadly cobras roamed the streets. The leaders came up with what appeared to be a clever solution – pay a bounty to any citizen who brought forward a dead cobra. The “cash for snakes” program worked like a charm for a while, and the streets became clear of these poisonous reptiles.

But then a shift happened. The payouts began to increase at a staggering pace. When British officials investigated, they discovered an unexpected consequence. Entrepreneurs started breeding cobras in mass numbers, so they could be killed and delivered to the Government for a handsome reward. Outraged and refusing to be taken advantage of, the British officials immediately canceled the program. At that point, the market for dead cobras dried up completely for budding snake startups, so the entrepreneurs cut their losses by releasing the snakes into the streets of Delhi, making the original problem of wild cobras far worse. The government wasted tons of cash, only to end up with a much bigger problem.

source