Businesses and Hidden Taxes: A Financial Model Shown in Two Ways

There are basically four (4) levels of business.


First, there is the “raw materials” level, which grows or harvests various foods, or which mines or harvests things like ore and other natural resources.

Second, there is the “manufacturing and processing” level, which takes the various raw materials obtained from what I’m calling the level one businesses and uses those materials to make the various stuff that will eventually be sold to consumers.

Third, there is the “wholesale” level, which buys very large quantities of the same product from the level two manufacturing or processing businesses.  These wholesalers then break up these large quantity purchases into smaller quantities that are sold to the retailers that consumers buy from.

And forth, is the “retail” level that consumers actually buy from.

This 4-level breakdown is overly simple, and some businesses appear to be are able to bypass one of the levels.  For the most part, there is some form of these 4 levels involved in producing the stuff we buy from retail businesses.

My point in taking the time to explain this 4-level breakdown of business is to say that every one of these businesses in each of these 4 levels has hidden taxes that are built into the price paid by their customer.

So, the hidden taxes of the level one businesses are built into the prices paid by level two businesses.

Level two businesses put some kind of markup on the prices they pay, plus add their own hidden taxes, which are then sold to Level 3 businesses.

Level 3 businesses put some kind of markup on the prices they pay, plus add their own hidden taxes into their prices.

Level 4 businesses then buy from the Level 3 businesses, put a markup on the price they are charged, add their own hidden Taxes, and in that way you have the final price paid by the consumer.

That means that the consumer who buys anything that passes through all 4 of these levels of business, is paying a price that, speaking of hidden taxes would be described something like this:

1. Level one business add hidden taxes into the prices charged to level two businesses.
2. Level two businesses put markup on the hidden taxes of level one business
3. Level two businesses also add their own hidden taxes to their prices charge to level three businesses.
4. Level three businesses put a markup on the level one hidden taxes that were already marked up by level two businesses.
5. Level three businesses also put a markup on the hidden taxes level two businesses added into their prices.
6. Level three businesses also add their own hidden taxes into the prices they charge to level 4 businesses.
7. Level 4 businesses put a markup on the level one hidden taxes that have already been marked up by level two and level three businesses.
8. Level 4 businesses also put a markup on the level two hidden taxes that have already been marked up by level 3 businesses.
9. Level 4 businesses also put a markup on the hidden taxes added by level three businesses.
10. Level 4 businesses then get around to adding the cost of their own hidden taxes into the prices they charge to their customers.

(If you think it was a challenge to read through that list of 10 items, try figuring out how to say it without getting even more complicated.)

I will now use numbers to show what I just described in words.  To do so, I am going to pretend that all new hidden taxes added by any of the 4 levels of business will start out at 8-cents, meaning 8-cents out of each dollar charged to their customer.

I am also going to pretend that all businesses in all industries use a 50% markup rate.

In reality, these two pretended assumptions are not accurate.  I am using them because they are simple, the math I will use is easy to follow, and that makes it easier for you, my readers, to see and follow the point I am making in this topic section.

Item	Level 1 businesses	Level 2 businesses	Level 3 businesses	Level 4 businesses	Total
New Hidden Taxes	$ 0.08				$ 0.08
Price to Level 2 Customers	$ 0.08				$ 0.08
New Hidden Taxes		$ 0.08			$ 0.08
Level 2 Markup 50%	$ 0.04				$ 0.04
Price to Level 3 Customers	$ 0.12	$ 0.08			$ 0.20
New Hidden Taxes			$ 0.08		$ 0.08
Level 3 Markup 50%	$ 0.06	$ 0.04			$ 0.10
Price to Level 4 Customers	$ 0.18	$ 0.12	$ 0.08		$ 0.38
New hidden Taxes				$ 0.08
Level 4 Markup	$ 0.09	$ 0.06	$ 0.04
Hidden Tax portion of the Price to the final Consumer	$ 0.27	$ 0.18	$ 0.12	$ 0.08	$ 0.65

Only $ 0.32 (32-cents) in actual hidden taxes were added as shown in this financial model.

Yet because of the normal business practice of a markup. There is another $ 0.33 (33-cents) added onto the end price of the product paid by the final consumer simply because of taxes being hidden within the prices of each of the 4 levels of business.

Thus, based on my financial model, and speaking as if my totally arbitrary numbers were actually real, by ending hidden taxes and replacing them with transparent taxes added only at the time the consumer makes their purchase (from level 4 businesses), the price of the product could be 65-cents lower. 

When 32-cents worth of transparent taxes were added, so that government could continue to collect the same amount of tax dollars it is now collecting, the price paid by the consumer would still be 33-cents lower.

Thank you for taking time to read and ponder my opinion on this topic.
An Opinion Article by Dave Kemper
                   _________________________________

It has been said that: "One definition of insanity is to do the same thing, the same way, over and over and over again, each time expecting to achieve a different result."
Therefore, we must either CHANGE the way we live, or we bind our future to our past as if with CHAINS.
"I do not consider myself to be better than anyone else.  But I do believe in exercising my right to not stay stupid."

David W. Kemper, Author
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