Simon Black On Another Form Of Inflation

Tyler Durden's picture

From Simon Black of Sovereign Man

Another Form of Inflation

Sticker shock in grocery store checkout lines and gas pumps around the western world is starting to set in. At this point, you have to be living under a rock to not notice that prices of goods and services around the world are increasing substantially.

Much of the blame for rising prices has rightfully been levied on the uncontrolled expansion of central bank balance sheets-- the US Federal Reserve, for example, created more money in the last two years than it had created in the previous 200.  Rejecting reject the possibility that any of this money could impact consumer prices is just intellectually dishonest.

There is another factor, however, that weighs heavily on inflation, and it is seldom discussed in this context: taxes.

Everybody hates paying taxes... but what few people realize is that tax hikes fuel rising prices. When payroll tax rates, import duties, corporate profits tax rates, sales tax rates, etc. increase, it's always the end consumer at the cash register who gets stuck footing the bill.

This is happening across the world right now, including in the United States. While governments in places like Illinois have made headlines for infamously raising their income tax rates in the middle of the night, local government tax hikes are going largely unnoticed. 

At present, 14 cities across California are raising their local sales tax rates, the highest being in Union City and El Cerrito (near San Francisco) to 10.25%. Then there's Prattville, Alabama, a town of 30,000 near the capital Montgomery, which just raised its local sales tax rate 1% to 9.5%

This has the effect of making everything more expensive-- instantly. Now, 1% might not seem like that big of a deal, right? This is how politicians think-- do we really care if we pay $50 at the checkout line, or $50.50? Of course not, it doesn't matter.

It's not about a single purchase, though, it's the aggregate of all of our purchases, and its starts to add up.  Not to mention, there's the slippery slope of thinking "well, if 1% didn't matter last time, let's hike tax rates another 1%."

Over time, the same thing happens when income tax rates rise. When individuals have less disposable income to spend, everything certainly feels more expensive... and when corporate and payroll tax rates increase, those increased costs get passed on to consumers in the form of higher prices.

There are some places in the world, however, that are getting it right. Singapore is one such place. Rather than concerning itself with dropping bombs and establishing military bases in other countries, the government of Singapore is living within its means setting conditions for the continued growth and prosperity of its residents.

This morning, I received a welcome email from one of my prime contacts on the ground in Singapore.  As it turns out, the government there is cutting its tax rates. Again. And my friend, a "who's who" in the Singapore corporate structure industry, sent along a very helpful guide to show me just how serious Singapore is about growth.

Individual income tax rates, which are already among the lowest in the developed world, are being cut. For example, income in the range of S$80,000 to S$120,000 (S$ is the Singapore dollar... this is roughly $65,000 to $95,000 USD) will now be taxed at a marginal rate of just 11.5%, down from 14% before.

For companies, corporate profits below S$100,000 (roughly $80,000 USD) under the old rate schedule were not taxed. This is still the case... and one of the reasons why Singapore is such an attractive draw to entrepreneurs-- because, for a startup, those initial profits are incredibly important.

The next S$200,000 in profits (roughly $160,000 USD) used to be taxed at 8.5%. This has been cut to 6.8% under the new scheme, so the effective tax rate on roughly the first $240,000 USD is only 4.5%. Pretty reasonable.

The next S$194,118 in profits (roughly $154,000 USD) used to be taxed at 17%; this has now dropped to 13.6%... and finally, all profits above S$494,118 (about $392,000 USD) are taxed at 17%.

screen capture Singapore: Cutting taxes... again.

As corporate profit tax schemes go, this is incredibly low.  A company with roughly $400,000 (USD) in profits would have an effective tax rate of just 8%, and a company with $1 million (USD) in profits would pay an effective tax rate of just 13.5%.

Singapore has also made new allowances in how businesses can deduct expenses through the "Product and Innovation Credit (PIC) Scheme."  The PIC Scheme allows businesses to deduct up to 400% of the actual expense for things like research and development, design, acquisition of intellectual property rights, etc.

While these tax benefits are advantageous for all companies, Singapore lends itself particularly well to entrepreneurs and professionals who generate the preponderance of their income online: it's a strong, independent, transparent jurisdiction to structure, it's one of the safest banking jurisdictions in the world, and the government provides generous allowances for royalties and intellectual property.

I've been traveling in the US for almost 3-weeks now, and as usual, I've been pretty amazed at all the gloom, bad news, and overall economic malaise. I'm here to tell you that there are still plenty of places in the world with significant opportunity, where productive, talented people are treated like valuable assets instead of milk cows.

Singapore is one of those places, and I think it makes a lot of sense to consider relocating there (if you're a skilled professional, investor or entrepreneur) or looking to structure a foreign business (especially an online company).

Tomorrow, I'll be releasing interview I just conducted with a friend of mine who is a very successful online entrepreneur.  He is another Atlas 400 member, and a phenomenal teacher about what he does.

I hope that, between the valuable insights he provides in the interview about building a new online business, and what we've discussed about places like Singapore, it may give you some ideas for a different direction.

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mynhair's picture

Hmmm, opportunity, bitchez?

Rahm's picture

Taxiation without representation, bitches!

jeff montanye's picture

no matter what the law seems to say, the u.s. has low corporate tax rates.  wage earners, from the poor to the n.b.a., are screwed.  the owners of capital not so much.  said as the latter not the former.

bmwm395's picture

GE 14b in profits tax bill zero not one dime

blindfaith's picture

US TAX FREE INCOME FOR overseas generated income by US companies ( even if the income was from selling goods to America). 

WHAT?  Thank you Republicans (Bush)for creating it, and Thank you Democrats for maintaining it.  Both of you keeping your loyal fans happy.

All income should be taxed AS IF generated IN the US, and THEN the foreign taxes ( if any) deducted from the amount and the balance paid with honor ( hahaha) by the companies.

This CRY-ME-A-River the companies (and politians) pull about the supposed high taxes they pay makes me sick.  And, who covers their ass when their is a problem doing business in these foreign lands....why the sucker American joe-blow taxpayer.

Look at the recent comment by John Chambers, Cisco, that "he would bring jobs back to America if the US would lower taxes to 5%"   Hey John FUCK YOU and the billions you have made off shameless shit.  I'll laugh my ass off when China nationalizes you ASS-etts or their servers eat your alive.

Punderoso's picture

No FU, if a company like Cisco wants to escape the fascist/socialist parasitic state...good for them, quit defending the complete BS Wellfare/Warfare nazi country this has I and others should be taxed to death to fund the endless wars, the endless debt and money printing ponzi scheme, the endless welfare handouts... that productive companies like Cisco which produce real products that people want on the free market should be hosts to parasitic totalitarian fuckheaded socialist/fascist utopian delusions by the political class or their parasitic political supporters that relies on the blood siphoning they do to purchase their support. Yea, just tax everyone, tax em tax em tax em, that is the fucking solution....that will bring utopia....our problem is that we do not tax have fucking convinced me you dumbshit. Just FU to hell you moron.

andybev01's picture

Fuck whoever junked you for that.

Popo's picture

Nobody is as screwed as the property owners.  They are the true serfs:  "bound to the land".

Buying property is the same as dropping ones drawers, bending over and asking a predatory tax regime to take you from behind.



chumbawamba's picture

Please raise your hand if you were previously bewildered by the concept of higher taxes = higher prices before you read this Magnum Opus of Obviousness Stating.

Those of you raising your hands, please exit that way ===>

May I suggest a basic course in 3rd grade math before you decide to re-visit?

Thank you, drive through.

I am Chumbawamba.

tekhneek's picture

+1 agreed. I don't read this blog to find out shit I already fucking know. That would mean I re-learned shit I already knew and that... well that's just unacceptable.

How many minutes do you think you've spent re-writing your username? We get it. You are Chumbawamba. You get knocked down, you get up again. We're never going to keep you down.

Oh what the hell. Nevermind.

krispkritter's picture

My Profile, Edit, Signature...does the repeating for you, for you...

chumbawamba's picture

Funny thing about that.  I set my signature early on when I first created my account but, you know what?  It never worked.  So yes, each and everytime you've seen it, I typed it.

It is a conscious and overt act in which I am signing my moniker to what I write.  It is my seal.

I am Chumbawamba.

baby_BLYTHE's picture

brb, reliving memories of 8th grade sock hop..

Chumbawamba+Third Eye Blind+Sugar Ray+MatchBox 20+Goo Goo Dollas+Gin Blossoms+Backstreet Boys

I wish I got to live during the 1950s :(

America has been on a rapid spiraling decline for 2 generations now. 

Glass Steagall's picture

Sounded more like a pitch to expatriate to Singapore.

blindfaith's picture

yes, you will love the jail sentencing for spitting, cussing, singing in public, smoking anything, expressing 'christian' views.


It does not seem to bother Jimmy Rodgers.

Creepy Lurker's picture

Jim Rogers lives in Shanghai.

disabledvet's picture

and "Japan has added more to it's balance in two weeks than the Fed has in its entire history."  Welcome to "the petri dish of finance."  The Bernank's theories are about to be put to the test:  release the slide rules!

Paul Bogdanich's picture

Then why didn't prices go down when they extended the Bush era tax cuts?  Why don't prices ever go down on any tax cut?  Because your logic is flawed.  There is no direct connection between prices and taxes other than narrative.  Management thinks customers will believe that prices had to go up because taxes went up so they pass them on to increase or maintain profitability.  Managements will do anything other than reduce profitability and bonuses you know.  Any bogus excuse will do.  Thanks for forwarding yet antother bogus excuse.  If you assume that managements were already charging the maximum that the market would bear then all increased taxes would do is decrease corporate profitability because they were already and always charging as much as they could.           

mynhair's picture

"There is no direct connection between prices and taxes other than narrative. "

Your premise is flawed.  Ask the blue States that are bleeding populace.

Plus, tax rates were kept level, not cut, on the extension.

lunaticfringe's picture

Dude, you might be on the wrong blog.

jeff montanye's picture

now, now.  that's the beauty of it.  arguments get critiqued.

Thomas's picture

That wasn't an argument, but rather convolution concentrate.

Rahm's picture

Hey Paul DumbF#@k (PDF) YOUR logic is flawed.  PDF has a lack of logic (LOL)

"There is no direct connection between prices and taxes" - PDF

Classic.  Anything you say after that becomes irrelevant.

jeff montanye's picture

sometimes you get to raise prices because of higher taxes, etc. etc. and sometimes you don't.  is that a direct connection?  sure you'd always like to raise prices, taxes or no.  but that's not the same thing.

and, at least for me, it's not the taxes that really piss me off.  it's the hideous shit they spend it on.

Dburn's picture

How in the hell did you figure that raising sales tax wouldn't have a direct effect on prices?
They have to get the money somehow. The exception of course is the wealthy who has everything they want shipped and billed to their tax exempt foundations but really, they don't count anyway. The mere idea of them getting little people's food and little people's leisure items is simply bowling alley behavior

traderjoe's picture

I think you completely missed the point. He's speaking of the inflation of taxes, and how it decreases disposable income - not necessarily how it impacts the prices of individual goods. 

For instance, when a road gets tolled for the first time, that's inflation of taxes paid. Does it impact the price of a banana, no. But it reduces the disposable income an individual has, and therefore leads to further economic decline (unless you believe in taxation and big government). A highway in my area is getting a $2.50 to $5.00 each way toll in the next couple of months. Commute 200 days a year, and that might add up to $1,200 in after-tax dollars. That's not insignificant. 

His example of sales taxes seems to suppose a base level of necessary spending. So, if you have to spend $20k on necessities per year, a 1% sales tax rise would cost you an extra $200. You don't have a choice. This reduces your other spending proportionally. 

BigJim's picture

Does it impact the price of a banana, no.

It will impact the price of the banana if any of the costs of bringing the banana to market were increased by having to pay the toll.

So the chances are it will impact the price of bananas (and everything else) sold locally.

Black is quite correct - taxes raise prices generally, because they raise costs.

mynhair's picture

Raises costs for non-productive activity.

blindfaith's picture

now, this is productive activity by just one company... Around the trun of the year, I wrote that I had been noticing many grocery items adopting the new 13.5 ounce-is-the-new-pound packaging.

I first noticed this at Thanksgiving, unknown number of friends for dinner, and didn't want to be caught short of sweet potatoes. I looked at a brand of instant potatoes which included sweet. All the boxes were 9.5 to 8 ounces each...cheese 'infused' the lower weight. I thought 1.98 for a box of instant sweet potatoes...pricey. Well, I was in the same delima at Christmas and those same boxes were now 7.2 to 6.8 ounces for the same price.

Yesterday at the store, a big display of "NEW FLAVORS!". Well, new and old were now 4.6 to 6.2 ounces for the same price. Tht is near 50% price vs weight difference in under 6 months.

It really hit me at how the American consumer is being inflated without their being aware of it. I have mentioned these obversations to most I know, and none even look at the package weight on anything.

Heaven help the ordinary bread winner with kids trying to make ends meet. Americans don't understand what is being done to them...mostly by the Fed.


So folks...look around you, you are being screwed by deception.

Paul Bogdanich's picture

It's clear that most of these people have never had the benefit of a 300 level economics course in their lives.  Therefore all the invective and "dude" this and "dude that.  If you want to get technical any product with a non-zero cost of production where unit cost is variable depending on economies of scale has a cross over point where all increased costs will do is reduce gross profit.  The term "taxes" is also nebulus.  What kind of taxes?  VAT tax, % of revenue or income?  Now VAT and % of revenue like they have in Canada go to the consumer in much higher proportion than a tax based on income.  Additionally for those that fancy themselves "investors" if any of your companies has a non-zero cost of the product they sell and would have to pass on an increase in income tax to the customer then the product being sold is by definition not priced at one of the maxima.  In other words their pricing is off to begin with if they can just increase the cost (for whatever reason) and not suffer a loss of sales or income.  Anyway I didn't realize that most of the posters here were so uneducated.  Like I said the propaganda is paramount anymore.  A good narative.  Facts don't matter.      

FreedomGuy's picture

Actually, in economics the market sets the price of anything and everything. It doesn't matter what the taxes or production costs are. You can try to pass them on but in the end the market says the product has a certain value. You can move along the price-demand curve by varying the price but it is not based on inputs like taxes. Some products may cost more to produce than the market will bear in which case the producer is out of business.

What does happen is that taxes tend to have negative impact in many areas besides price, but they should generally be deflationary in that they reduce consumption and put extra internal pressures on production and sales. It is a prime motivation for moving overseas to reduce production costs...cheaper labor, lower taxes, fewer rules/regs. Look at the recommendation here to head for Singapore. Capital searches relentlessly for its best return.

mr. mirbach's picture

Methinks that most ZH'er believe that anyone with advanced education in economics has abandoned any and all connection to reality, e.g. Chairsatan Bernanke and his FRB minions.




andybev01's picture

Thank you Mr. M. for that succinct observation.


Luckily I have never had the benefit of a 300 level economics course, so I don't feel bad when I tell Paul Bog. to 'Go fuck yourself'.

BigJim's picture

If you examine the post I was replying to, I was arguing that a new toll on a road might very well add to the price of bananas.

Congrats on completing your 300 level economics course!

Now I suggest you go back and do the 100 level English comprehension course.

decklap's picture

@traderjoe "and when corporate and payroll tax rates increase, those increased costs get passed on to consumers in the form of higher prices."  If he isn't talking about taxes increasing the price of individual goods then he isn't talking about anything at all, which of course he isn't

Rahm's picture

So if everyone in a town of 30k has $200 less to spend, based only on your 1% salex tax increase, will the consumer's buying power increase or decrease?  Add in various other tax hikes, and that consumer would have suffered greater than 1% in their purchasing power.  If everyone in the town of 30k residents is now purchasing less at the local mom & pop coffee shop, will the demand for the shop's products increase or decrease?  If by some miracle, it were to decrease (heavy sarc), would the coffee shop increase or decrease prices in order to drum up revenues to make up for the lost business?  Basic economics dude. 

Add in various other factors, including the coffee shops increased input costs, basically across the board (sans employees wages - stagflation baby), and you have a mom and pop shop laying off employees, and closing up shop. 

One reason is so popular, is the lack of paying sales taxes (but not in every state), helping to make an item cheaper, and a reason competitors are bitching to all across the nation regarding the unfair advantage has.  If items weren't cheaper, why would Amazon's competitors complain? 

QQQBall's picture

Trader Joe, THAT IS NOT WHAT he is saying. You could, I suppose, argue whatever you tax, you get less of and therefore prices would tend to rise.


Your arguement is deflationary, not inflationary and so is his; he just does not realize it.



Dburn's picture

You can phrase anyway you want but if you ask a person how much something costs, they are not going to say "well pretax, this banana cost x and then after tax net was X+T calculated on a percentage basis of sum(ST x PTB)+B=FT". Ever hear someone say that?

Bobbyrib's picture

Move to a lower COL area if you don't want to pay "taxes" for commuting to work.

decklap's picture

You are absolutely correct.  There are any number of examples of local drops in sales tax with no corresponding drop in local prices.  This was nonsense.

BigJim's picture

'Any number'? Some examples, please.

Though I guess 'zero' is a number too.

Anyway, saying that any increase in the costs of bringing something to market will ultimately be met by the consumer, is not the same as suggesting that businesses won't take advantage of the 'stickiness' of the public's perception of what items cost, when some of the businesses' costs decrease. Above all else, businesses respond to competition when it comes to pricing. This is why, when taxes go up, it may be weeks or even months before retail prices reflect the rise - individual companies will attempt to keep their prices lower than their competitors until they risk losing actual money.

Furthermore, we are in a broadly inflationary environment (except for things bought on credit). If VAT is reduced by 2.5%, a business is not going to bring its prices down by 2.5% if its other costs have been increasing at 8% per annum.

Mossy's picture

Of course a business is not going to reduce the sales price of an item. Not with inflation staring them in the wallet. Or, at least, they will not without competition from someone like, oh, say, "WalMart"?

rosiescenario's picture you are saying that the price I pay (which includes the sales tax) does not go down if the sales tax is reduced?


It is also not just the taxes that hurt, it is the levels of bureaucracy and regulation in states such as CA that drive folks to do start up companies elsewhere...or out of the U.S. completely. Entrepreneurs get treated as though they were some sort of criminal that must prove their innocence first before being permitted by these gatekeepers to proceed. They are are all anti-business, but they demand their share of the profit...crazy.

FreedomGuy's picture

Well said. Government writes rules for companies that it has no ownership rights in and has no responsibility for the results. It's a great situation and its intoxicating in its power. Once we become the USSA with another 80,000 pages of regs, 40,000 more pages of tax laws and not the second, but the number one highest corporate tax rate in the world we will see if the modern statist-liberals can produce economic nirvana. Wanna take bets?

andybev01's picture

Don't forget another 16,000 IRS employees.

FreedomGuy's picture

Oh, excellent point! They are here to help us, I believe. You would think just maybe anything that comes with 16000 new agents/law-enforcers would raise a few eyebrows...especially since we are not dealing with criminal law. Not these days it seems.

packman's picture

Then why didn't prices go down when they extended the Bush era tax cuts?

Help me out here - are you really this clueless?

You do realize that extending tax cuts is not actually lowering taxes, right?  That it's just not raising taxes; i.e. it's not changing anything - right?  If no changes is made - then why would this lack of change cause prices to change?

Not to mention - the Bush tax cuts were cuts in income tax, not corporate taxes.  So the only "prices" that could feasibly be changed by changes in these taxes are the wages that you charge your employer.  Hypothetically they could have changed - e.g. if you all of the sudden were paying more in taxes to the government, then you might demand a higher salary from your employer, in order to maintain the same income level and therefore the same standard of living.  Good luck with that though.  The effect of that would be (is) to push jobs overseas.


Sophist Economicus's picture

Don't confuse the hyperventilating trolls with data!   Like pouring a gallon of water into a shot glass