07 July 2011

What a racket

Coyote Blog | Warren Meyer | Wal-Mart Thought for the day

Wal-Mart’s profit to shareholders is about 3.6% of sales. This means that for the majority of the country, on the items you buy at Wal-Mart, they are earning less than half of what the government takes in sales tax on the same item.
This is shocking and simultaneously not at all surprising.

A similar story:

Exxon's profit margin last year was 5.7%. Based on the current national average gas price of $3.579/gal, they would make 20.4 cents per gallon. The government's profit, for comparison, is 48.1 cents per gallon, or 13.4% of each sale at today's prices, or almost two and a half times what the producer makes.


  1. I'm going to SB7 you a little bit, although I'm sure you already have the answer. If it upsets you that these numbers are wrong in some way, aren't you supposed to propose what the right numbers should be?

    In seems to me that both of these entities, logistics champions and free trade giants Walmart, and mineral resource giants Exxon both profited magnificently off investments and research and risk taken initially by the government. Moreover, to the extent that either causes harm, they tend to do so in the diffuse, death-by-a-thousand pinpricks ways that no single voter/consumer would ever punish.

    I'm not saying these numbers are fair, but you aren't saying why these numbers aren't fair.

    (I'm playing fast and loose with "fair" here, and I hope you take my meaning more than my semantic choice.)

  2. Ah! You got me at my own game!

    Okay, I don't have much time to think about this, but here are a couple off the cuff reactions.

    (0) I'm not really sure Walmart has profited much from government risk or research or knowledge. For that matter, I don't know how much Exxon has either. (More than Walmart, likely, but I'm not sure.) This is (sort of) an empirical question, but since I don't have any data I'll just stipulate that you're right on this for now.

    (1) For people, I think it's reasonable that you pay no more than 50% of income to the taxman. My thinking is that you shouldn't have to do more work for the state than for yourself. I think I was subconsciously working from that frame of reference here.

    A seconds reflection makes me realize this is a really poor analogy since my after tax income is not like a corporation's profits. It sounds reasonable to at first to say a firm shouldn't have to pay to more to the state than it does to its owners, but then you're in a position where a firm with falling profitability gets its taxes reduces and a more profitable firm gets its raised, and that doesn't make sense.

    (2) Like I said, I don't know how much the government makes Walmart or Exxon sales possible over all. But I think at the margin, I think that answer is "hardly at all." They aren't contributing to moving that next item off the shelf. In fact the state gets its 7% whether I buy my widget from Walmart or Target or Mom & Pop's. I can't really think out what this all means, but it seems somehow relevant to me, like the state is not "earning" its share of that sale the way the actual seller is because they're not contributing at the margin.

    (3) I actually like consumption taxes, and I think we should base the tax system much more heavily on them. (Even entirely on consumption taxes, if I'm feeling radical!) So perhaps I should relax about this.

    (4) Perhaps the Walmart and Exxon situations I've described aren't really "unfair." At least not in a way I can defend now, lacking any solid information about what the government is contributing to make their operations possible.

    But I think they still have some value, if only as a bit of context when people complain about the avariciousness of Walmart or "Big Oil." Perhaps the real take away here is not that this situation is unjust, but a reminder for people who worry about "Big Business" that every dollar these companies take in is going more to the state than the capitalists they fret about.

  3. Hear that sound? I'm playing the world's tiniest violin here.

    But seriously: if Exxon or Wal-Mart was at risk of going bankrupt next week, do you really think the government would allow that? They're Too Big To Fail. We'd socialize their losses, so we may as well at least socialize a nontrivial amount of their gains.

  4. Bankruptcy is hardly my concern. I am far more interested in what these sorts of tax rates mean for economic growth. And besides, these taxes don't fall on something called a corporation. They fall on customers and employees and owners. Or as I like to call those people "us."

    And for the record I loathe the socialization of losses just as much as you likely do. I believe in markets, and I think that means letting losers lose.

  5. Thanks for the good response. I can already see a lot of common ground here. I can full accept (1) the way it's written here. Anything above 50% seems ludicrous on its face. And (3).

    I'm happy to say that (0) and (2) require more evidence than either of us have immediately, although I think it's more significant than you do (of course, I remain willing to be convinced otherwise as I grow older and wiser).