Napkin Calculations

Ok, I know it is more complicated than this, but let’s consider a hypothetical ship that the US Government buys from Northrop Grumman.  Say they pay $10,000,000 for it, but it only costs them $9,500,000 to make.  The government gets back 35% of that 500,000, or $175,000.  That remaining $425,000 goes to shareholders who also have to pay their own taxes on it…  another 15%.  Giving the Government $48,750

If 60% of the costs are in materials and there’s a 6% sales tax on that, the government gets $342,000 in sales tax.  I think it is fair to guess that a large part of the cost to produce those components that get bought also gets eaten up in salaries, so let’s assume that these people are making money in the 28% tax bracket.  That’s another $1,276,800 that goes back to the government.

The remaining 30% goes to salaries and 10% to facilities.  (Yes, I’m pulling these numbers out of the air, but it’s a thought exercise.  I am hoping that Freakanomics will take on this question and address it for real.)  There has got to be some taxes associated with running the facilities, but I don’t know what they are, so we’ll stick to the salaries.  Assuming that these people make a little more than the poor suckers producing the steel that makes up the ship, we’ll tax them at 30%.  That’s $840,000.

So for every $10,000,000 the government spends, it gets $2,633,800 back in first-degree taxes.  Take it down another level and contemplate what the salaries are associated with what the people who are getting that first-degree salary are buying…  House and pedicures and grocery stores and malls and so on.  Because we know we aren’t putting that money into savings.

Does it change anyone’s view of government spending knowing that, at least roughly, for every $1.00 spent, $.30 comes back to it?

Napkin Calculations

One thought on “Napkin Calculations

  1. mrsmole says:

    If you live in Europe every country has a VAT (Value Added Tax) tax on all goods and services which can run around 20% up depending on the items as luxury goods that number goes up like on alcohol and yachts. Besides salary taxes it is the only way to collect and run the government.


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