Tag: high prices

The City of Chicago Will Now Tax ‘Amusement’

othman Mekhloufi | United States

 

The Amusement Tax

The City of Chicago is now levying taxes on amusement, entertainment, or anything remotely fun-oriented.

The City of Chicago’s Department of Finance, rather than the City Council, issued a new tax ruling called an “amusement tax”. This tax would subjugate any residence within the official city limits of Chicago to pay a 9% tax, in addition to sales tax, on anything which is remotely related to amusement; whether it be streaming movies on Netflix, playing video games, or going to a football game, such a tax would apply.

Here is the following list of all the assortments to be taxed according to the ruling itself.

“Any exhibition, performance, presentation or show for entertainment purposes, including, but not limited to, theatrical, dramatic, musical or spectacular performance, promotional show, motion picture show, flower, poultry or animal show, animal act, circus, rodeo, athletic contest, sport, game or similar exhibition such as boxing, wrestling, skating, dancing, swimming, racing, or riding on animals or vehicles, baseball, basketball, softball, football, tennis, golf, hockey, track and field games, bowling or billiard or pool games; any entertainment or recreational activity offered for public participation are on a membership or other basis including, but not limited to, carnivals, amusement park rides and games, bowling, billiards and pool games, dancing, tennis, racquetball, swimming, weightlifting, bodybuilding or similar activities; or (3) any paid television programming, whether transmitted by wire, cable, fiber optics, laser, microwave, radio, satellite or similar means.”

With this ruling, there are also some exceptions. All venues held in auditoriums or theaters with a maximum capacity of not more than 1500 people are exempt from the 9% amusement tax. However, these venues must be in person live performances to be exempt from the tax. This exemption does not apply to movies or sporting events.

Currently, Chicago’s sales tax, with all jurisdictions considered, is the highest in the entire nation at 10.25%. With this amusement tax being set at 9%, it is also compiled onto Chicago’s default sales tax of 10.25%; meaning that the population of Chicago is not only stuck paying an astronomically high 10.25% sales tax, but they are also required to pay an additional 9% tax on any assortments in relation to the amusements previously listed.

The Impact on the Wallet

The economic repercussions of such a new tax would be quite negative for the City of Chicago. Said economic repercussions would revolve around the primary negative effect of margin loss. The government is now levying more taxes from the people via two separate sales taxes, one at 10.25%, and one at 9%. Because of this, less money will be the pocket of the populace. When the populace has less money in their pockets, they will have less money to spend. Because the populace will have less money to spend, businesses will lose out on customers, as well as profit. When it occurs that businesses lose out on customers, and income, one primary negative effect on the economy would take place; that being, margin loss.

This margin loss will always have two sets of negative economic sub-repercussions. The first set of sub-repercussions are unemployment, cutting of wages, as well as the cutting of work hours which fits into the internal-labor subsection. The second set of sub-repercussions are and the hiking of prices which fits into the consumer subsection. Meaning, that with such a tax, prices would in fact increase, and jobs, work hours, as well as wages,  would all be cut.

The Impact on Employment

Let’s take a look at the first set of sub-repercussions; unemployment, the cutting of wages, and the cutting of work hours. Due to the fact that businesses will be losing margin due to fewer customers, they will always want to mediate that margin loss. To mediate this margin loss, businesses have two choices; either begin to raise their prices, or cut spending somewhere within the company. Usually, when spending is being cut, it is centered around wages and not other essentials of the company. This is due to the fact that if companies were to cut spending for such essentials, the product, and or service being provided would degrade in terms of quality. In turn, this would only result in furthermore margin loss due to the general premise that no consumer populace wants to purchase an inferior product with poor quality.

With this, we can determine that a margin loss, for whatever reason it may be, will indeed result in a spending cut. Said spending cut will be focused on wages. More specifically, when implementing this, hours will be cut, some individuals within the company may be laid off, and many wages will be reduced all to minimize for the loss in margin caused by economic government intervention.

Don’t Forget About Prices

Considering the second set of sub-repercussions, the hiking of prices, this also comes with its own extended economic repercussions. Other than the fact that cheaper goods mean best for everyone on both sides of the transaction, the hiking of prices comes with its own furthermore economic disparities. When prices are hiked to mediate a loss in margin, an even higher amount of margin loss will occur. This is due to the following reasons; when a company raises its prices for whatever reason it may be, and in our case, margin loss, the populace will be less incentivized to purchase said product, and or service.

Because of this, sales will go down even more, and the company suffers even more margin losses. For instance, a 2014 study conducted by YouGov found that nearly 1 in 5 of Netflix subscribers polled would cancel their subscription if the price went up by $1 a month. Nearly half of those polled would cancel their subscription if the price went up by $2 a month. If these increases in subscription prices would happen due to a loss in margin, Netflix would experience even more margin loss as it loses even more customers due to price hikes.

As we can now see that not only do price hikes burden the consumer populace as everyone enjoys cheap goods, but they also cause margin loss in companies which, if it were to be on such a large scale, would cause unemployment, cuts in wages, as well as cuts in work hours as previously explained.

Many may claim that the amusement tax rate may only be 9%, and at such a small rate, it would not cause any actual negative economic repercussions as previously mentioned. However, this amusement tax is estimated to levy $189 million in the year 2018. Not only this, but the amusement tax’s levy margin has been trending upwards since 2017 when it took in a measly $168.7 million compared to the $189 million of 2018. With the amusement tax raking in hundreds of millions of dollars a year, and with it only trending upwards, we can truly determine that such a large amount of money being taken out of the economy will indeed cause the economic hardships previously mentioned.

Although these economic repercussions have not been extremely severe in Chicago due to the fact that the amusement tax is only centered within one jurisdiction; if the western world continues this trend of large government economics, and a similar policy begins to be implemented on the federal level, the economic repercussions previously listed would scale to a very large extent affected millions across the board.

In reality, with such a tax, we would only cause economic hardships; unemployment, cuts in wages and work hours, as well as hikes in prices across the jurisdiction in which it was applied.


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Don’t Like High Drug Prices? Blame the FDA

By Indri Schaelicke | United States

A common talking point in many political debates is the extreme prices of many medical drugs. Left wingers like to blame “greedy capitalism” for the high prices, and advocate for some sort of government program that will increase the size of government in an attempt to cap drug prices. In reality, capitalism is the tool that must be used to bring medical drug prices back down to affordable levels.

The truth is, the US is not a true capitalist free market. Rather, it operates under a system of crony capitalism. Crony capitalism is a system in which representatives agree to give benefits to certain corporations in exchange for campaign contributions. These benefits may take the form of purchases by the government, limiting the corporation’s competition in the market through regulation, and creating loopholes in regulation or taxation. These benefits are paid for using taxpayer money, while the representatives receive financial backing for their campaigns or votes in their next election. Bureaucratic agencies like the FDA create regulations and policies which further cronyism.

A major source of cronyism exists in the FDA’s requirements of extensive research and testing to be done on products it approves to be sold. These studies cost thousands of dollars to companies, which must be covered by increasing the prices of the drugs sold. However, Congress has created “Priority Review Vouchers”, which reviews certain drugs at an expedited pace. These vouchers are incredibly valuable, because the development process for drugs takes many years.

The vouchers can be sold to corporations at a high prices due to their scarcity and the incredible benefit of having the review process sped up. If a company had their new drug approved before any others, they will have no competition in the marketplace for several years and are free to raise their price as high as they like. The FDA has the power to create monopolies, a power that no agency or branch of government should have.

So what’s the solution? Open up the markets. Competition is what drives prices down to affordable levels, and there is no competition in a crony capitalist system. Before the Airline Deregulation Act of 1978, the U.S. federal government had control over airline fares, routes and market entry of new airlines. This severely limited the competition in the marketplace to just a few airlines, but soon after the Act was signed, several new ones entered the market. Without the Civil Aeronautics Board to protect them from competition, airlines were forced to set their prices through supply and demand, with competition lowering the equilibrium price of airfare. By deregulating the airfare markets and preventing special interests from lobbying an airline regulatory agency, airfare has become cheaper for consumers.

The same must happen with the way that the market for medical drugs is regulated. The FDA must be abolished, and competition in the market will flourish. Prices will drop due to the influx of competition and life saving drugs will become more affordable to consumers.

A concern of supporters of the FDA is that without it, unsafe and potentially dangerous drugs could slip into the market. However, this can be refuted on the basis that no business has an incentive to create a harmful drug. If harm is done to a consumer, they can sue the business and claim compensation for the damages.

The abolition of the FDA would unleash the power of markets to create and develop new, revolutionary drugs at affordable prices. An effect similar to those seen after the Airline Deregulation Act of 1978 would be seen, and bring an end to the crony capitalism enabled by the FDA.


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