3 Minutes to Prove Yourself Smarter (or at Least More Hardworking and Duly Diligent) Than Matt Yglesias

Via AoSHQ, Twitchy revealed Matt Yglesias @mattyglesias saying that tax rates do not affect pricing.

His logic goes thusly:

No. Taxes are paid on profits not sales. It’s irrelevant to pricing. – @mattyglesias

I had to stop and think it over. With pen and paper and a calculator.

It took all of 3 minutes to compare the following:


Joe and Jane both sell the same widgets.

Widget cost is $1 a piece.

For inexplicable political reasons, Joe is taxed 15% (on nett profits, not sales as Matt Yglesias correctly states) while poor Jane is taxed 20%.

If Jane sells each widget at $3 a piece, she will have after-tax take-home money of (3.00 – 1.00) x (100% – 20%) = $1.60 a piece.

Whereas Joe can undercut her by selling widgets at $2.90 a piece, and he will have after-tax take-home money of (2.90 – 1.00) x (100% – 15%) = $1.615 a piece… More than Jane gets even though he sells cheaper!


Three minutes to prove that different tax rates can incentivize different pricing.

So which is it, is Matt Yglesias too lazy or too blinkered to do one measly page of basic high school maths?




3 Responses to “3 Minutes to Prove Yourself Smarter (or at Least More Hardworking and Duly Diligent) Than Matt Yglesias”

  1. Ron Says:

    And it took less than one minute to discover that corporate profits after tax are higher now than they ever were during the entire Bush era. 🙂

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