Laugher Curves and the New Tax Rates
•
by Rigour6
Most days I just quietly go about my business. I have a lot of companies and no employees, I just work as manager, then do some fighting, etc.
I've known for a long time that this is not actually the most profitable/efficient way to run a company. But (and I know this may seem heresy to some), I actually don't mind paying taxes or, as I prefer to think of them, dues for being on Team Canada, whatever the hell that means. I've been playing a long time, so have built a strong company network, so I'm in no danger of running out of money. I just plug along.
There's a point on the Laffer Curve where increasing the marginal tax rate may actually decrease revenue, and that's often seen as the point past which governments should not increase the rate. It's important to recognize that a country's prosperity ultimately depends on the goods it produces, some version of GDP. It's all very well to redistribute pies, but how well people eat is ultimately a factor of how many pies get baked.
I absorbed the hit of the tax increase and kept on keeping on, but when you work every day and lose money, at a certain point you say to yourself, OK, time to sharpen the pencil and have a look. Today was the first step in that day. I just liquidated 4 companies which I have realized under the present tax regime have no realistic prospect of ever making any profit. Please note: I didn't mothball them, I liquidated them. They got turned into cash and they won't be back.
Now, it's important to recognize that this is not a huge deal. A more efficient/smart/ruthless player would have probably made the same decision years ago regardless of the tax rate. The companies didn't employee anyone other than myself. They weren't efficient. To the degree this takes excess capacity out of the market, that may be a good thing, and the market will eventually find its level. And, even with this change, the new tax rate still results in the treasury receiving significantly more tax revue daily from me than formerly.
That said, it IS productive capacity lost to the economy permanently. It IS fewer pies being baked.
I'm still losing money every day, and I'm still Ok with that. For now. But obviously I can't do that forever. So yes, the new tax regime is forcing me to "play smarter". But the decisions its leading me to make suggest to me that we're approaching the transitional point of the Laffer Curve. On the warning track, as we say in baseball.
NxNE, Vol 14. Number 1
Facebook
Twitter
Discord
Comments
I don't think the capacity will be missed since their is vastly too much capacity. The greatest loss is that those are companies that will never pay tax again regarless of the rate.
Short term a high WT might produce some extra revenue, but long term I think we lose tax paying companies created back in the days when there was wealth to create them. I sold off most of mine a while back too and just roll the pile over in the monetary market.
For economically minded people, figuring out little ways to make play money is a big part of why we play the game so we're going to react rationally against "the county's" interest when a tax rate is set too high.
For others the game's play money is just meant to be burned up and enjoyed and they'll just think you're weird to care about the effect of a tax rate.
Some interesting notes
The average wage in Canada has dropped 4 cents over the past 3 days. work tax is down from 3.65 to 3.61
I think you will be surpised at capacity. If you look at the food markets now, for the first time that I can remember, q1 food is cheaper than q2. q1 is at .06 and q2 is .13. When that inventory is cleaned out, buyers will revert to q2 and higher.
q1 markets are down to 1 page at .06
q2 was at about .10 to .11 (.10 being the quick unload price) so we are now looking at an increase of around 18% - 30%, as minimum price is now .13 and there are only 4 offers.
When q2 was in the .12 range there were 3 dead citizens with offers still up which were in effect setting a price you had to beat. All 3 are now gone and that is money out of the economy. We have 1 more at .13 and another at .15. Once they are gone, that is more cash out of the economy.
q3 has been unaffected so far.
This is a well thought out article and I am glad to see a new face participating in the media.
Hehe Rigour he called you a new face. These younguns just have no idea do they.
You of course are 100% correct, the trick to tax rates are to find that sweet spot, more intake without any productive loss. Of course we have been operating at such an extremely low tax rate for so long any fluxuation is perceived as a huge one. I think a more gentle rise would have been the best approach so as to treat the people like a boiling lobster.
I only voted and endorsed because it was Rigour of NB pride and not because I read the shit.
also blow me Rigour you never endorse anything I've ever written ya cheap fuck.
I vote for it (and you) but my money goes to paying taxes on my inefficiently-run companies. If you'd read the article you'd know that.
Join Cordis Die
Free TemujinBC!
I liquidated 15 companies from my business. The only good so far that has come from these horribly high working taxes is that some of us have looked at what it costs to produce things and have now made some adjustments that will make us stronger when the work tax is reduced. A lower work tax will bring more workers back to click. Inactivity happens it's what you do bring the activity level back. IMO, Lower the Work Taxes, increase the import taxes, and return to a National MU, fueled by slave pits to reduce the overall costs of paying for wars. It apparently is working for Cordis Die...It worked for the TCO way back when...and many other MUs of the past.
Cordis only works because Rylde heavily subsidizes it out of his own pocket. The slave pits just help mitigate the costs.
One pit would cost something like 3800 gold for a Q7 with 88 Q5 RMs. The math just sucks with q7
What's the alternative?
That is why you should do q6 weapons instead of q7's. A lot cheaper to produce and a good bang for your buck.
~hyuu~
I thought you said "laughter curve".
(Actually, I didn't but don't have anything relevant to say.)
Never stopped you before.......or now for that matter.
More taxes = more laughs
The only companies you could possibly be losing money on are the Q1 companies.
Of course a large portion of you weapons factories are money losers regardless, so I can see issues there.
you missed a couple of things on your q2 food analysis. Consumption of the food you need to replace the energy (so 3 q2) and vat. It doesn't make a huge difference but there is one and it has an impact on payback time or if you have multiple companies.
You can look at the consumption cost of the q2 food 2 different ways. You can look at the actual cost per unit, or you can look at it from the opportunity cost perspective. I tend to look at both.
Fortunately we are 1% VAT but yes, that is something I should throw in, even if it is negligible.
Show me the math, man. I'm not sure there are many companies where you can make money these days.
Most food companies are winners.
Take your basic Q2. Canada has 100% bonus so we produce 200 Q2 food for 400 FRM.
FRM Costs: 400*.02=8
Work Tax: 3.6
Total costs: 11.6
Q2 Food Sales: 200*.11=22
Total Revenue-Costs: 22-11.6=10.4
Every food factory above Q1 is profitable in Canada.
Now weapons are a different story altogether I'll admit. The food raw material factories are profitable as well after Q2 in Canada. Again, weapons are tricky but after Q2 weapon raw material factories are also profitable.
I'm just going to have to release an article and spreadsheet this all out because I'm tired of watching people say nothing is profitable. Also I admit I didn't look at housing, but I'll do so when I have the time to do this report.
I admit to not having done the math on houses either but I bet it's hard to make a decent profit considering our lack of Housing Bonuses.
Also, you can't forget about RM companies either.
As far as WAMing's concerned (all industries other than houses and HRM), there are few companies that an average player (i.e. not an old rich player or a someone who buys gold) can reasonably be expected to own that makes more than a few bucks' worth of profit.
Q2 and Q3 food (by Q4 the gold costs are already hard to justify as cheap enough for an average player). Q7 weapons (again stretching the idea of average, though). Then Q4 (just barely) and Q5 RM companies. That's not a hell of a lot and most aren't making a hell of a lot either.
$10 bucks profit on a 21 gold investment epitomizes what is wrong with the economy Because that's realistically the best investment right now and it's still debatable whether it's worth it.
And just to be clear the Work Tax is only one factor at work here - albeit the one we can most easily control.
"The food raw material factories are profitable as well after Q2 in Canada. Again, weapons are tricky but after Q2 weapon raw material factories are also profitable."
I did not forget RM. My point is the work tax is hardly the issue and there are profitable companies.
The Work Tax is a huge issue for RM companies when profit margins are already so thin to non-existent. Doubling the Work Tax reduced some profit in half.
"There's a point on the Laffer Curve where increasing the marginal tax rate may actually decrease revenue, and that's often seen as the point past which governments should not increase the rate."
I think it is worth examining this point further according to eRep game mechanics, particularly with people's ability to easily shop for cheaper products in different countries. There might be a point where taxes can only go so high until they cause prices/operating costs to rise. This would then cause sales of eCanadian products to slump. This combination would negatively affect tax revenue.
That can be pretty easily calculated, actually. I've already run the numbers on RM companies in another article.
Was it the "Best Companies to Own" article by Aries? I don't suppose your numbers arrived an optimal tax rate.
Come to think of it, the actual numbers don't matter to me. I was just wondering if eRep economics were so wacky that maxing out the tax rates would actually promote long-term tax revenue.
Players want to stop relying on Gold buyers to fund wars. They want to drastically hike tax rates to do so. Current tax revenue indicates it would take up to 2 months to fund a short war. But, chances are that even if it works in the first two months, that the months afterward would see a decline in revenue and a further delay in funding wars.
Seems like a pretty inefficient way to become less reliant on visa cards. It just ain't gonna happen unless people lower their expectations of how active eCanada can be in its own productive wars (not talking about the pro-wipe wars against the likes of eUSA).
It shouldn't be that hard to do the math for the break even mark for a given company being WAMed. We just have to choose our constants. For weapons, I'd recommend going with Q7s. Food maybe Q2.
Let's do weapons. Although prices have been volatile lately, they're currently selling for $7.70. Remove the 1% VAT and profits are $7.62 per weapon times the current 16 weapons produced per company for revenue of $121.92.
WRM costs $0.03 each so the 3,200 WRM needed cost $96 altogether. That makes for a pre-Work Tax profit of $25.92.
The average wage is currently $36.14 meaning that each 1% of Work Tax costs the Manager $0.36. $25.92 is thus the equivalent of a 72% Work Tax. The highest it can be set at is 25%
So, in summation, if we have an average wage of $36.14, a 25% Work Tax for weapons, and a 60% weapons bonus, costs for that company would be $9.04 in Work Tax and another $96 dollars for 3,200 WRM at $0.03 each for a total of $105.04. Those 16 weapons selling at $7.70 each would bring in $123.20 for revenue, after removing the 1% VAT, of $121.92. Removing the $105.04 costs from the $123.20 revenue leaves a profit of $16.88 per day.
Now then, the question is: is that optimal?
"an average wage of $36.14"
The only problem with using an average wage is you won't attract workers. Right now the highest wage being offered is $45.10, so you will have to use that number, because nobody is going to work for you at a discount. At 36.14, your job offer will be at the top of the second page.
The Work Tax is based off of the Average Wage found on the Economy page: http://www.erepublik.com/en/country/economy/Canada
I was just talking about the costs for WAMing. Actually hiring employees is a whole other story.
ah sorry I thought for some reason you were looking at hiring people. That is what I get for reading stuff late at night.
"leaves a profit of $16.88 per day.
Now then, the question is: is that optimal?"
___________________________________________
Clearly not. The optimal course is to dissolve the company and take an enormous amount of gold now instead of keeping the company and making 16 dollars per day. ..... $16/day :0 That is like two gold/month. Not long ago many of us were still doing ten gold/day but I don't think we will ever see those days again.
Oh my, I see mention of wages. One must see nothing but despair if you are trying to get ahead working for a living. The grinch mentions something about $45 wage, let's be generous and say $50/day can be had. Gold is well over $250, so that means you must work more than 5 days to make one gold.
http://wiki.erepublik.com/index.php/Combat_Stash
Unless it is completely impossible to spend real monies on eRep your problem is solved. 9.9 euros or less that $15 US gets you 2 months wages in gold plus a lot of goodies that make the game more fun. Heck, it you're a real tight wad, build them Q2 foods and Q3 FRM's someone was saying are most profitable and use cc to 'buy' the Combat Stash from someone.
I guess I just don't get it. People playing a browser game that is obviously rigged so that you must spend real money on it (and how many on-line games want you to spend money to play?) and they worry about pennies.
Good grief, I was 'paying' my commune workers 14 Q7 weaps per day when we had like 3 weapons bonuses. There has to be someone out there doing similar. Even 10 Q7 per day would be like 75 cc.