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Richard Rider

CRUCIAL public misconception: “Business makes 36% profit on sales” Actually only 6.5%.

Here’s a crucial misconception by the public.  It’s a misunderstanding that leads to calls for government mandates such as a $15 minimum wage — with the cost supposedly paid out of “greedy business” profits.

A poll asked: “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?”  

The average response – 36%.  That’s about FIVE TIMES the actual figure. Other polls give similar results.

The latest average profit margin of 212 industries was 7.5%.  The median profit margin was 6.5%.

To state the obvious:  Given that labor costs constitute 30% or more of the sales dollar for most industries, the cost of a $15 minimum wage will HAVE to be paid by the customers.

BTW, the latest (2018) profit margin for hated Walmart?  2.25% (LOWER than the 3.1% in the 2015 chart below).  That’s BEFORE Walmart paid 37.4% of their profits in federal and state corporate income taxes, leaving Walmart with an after tax profit margin of 1.4%!  See details at the bottom of this article.

Share this info with friends AND enemies.  Let’s raise the economic awareness of America.

https://www.aei.org/publication/the-public-thinks-the-average-company-makes-a-36-profit-margin-which-is-about-5x-too-high/

——-

IMPORTANT RIDER P.S.  Another thought: It’s interesting to look at corporate income statements for another figure — the corporate income tax paid on profits. 

The Left loves to claim that many if not most corporations pay zero income tax. A few do (using government tax credits, or simply not making a profit), but most pay a pretty substantial amount.

Looking at the 2018 (hated) Walmart profit and loss statement is instructive. The company, the company earned $11.450 billion on $510.329 billion of sales. That’s 2.25% profit — LESS than the 3.1% profit in the bar chart above.  In its best year in this century, Walmart made 3.5% profit on sales.

But then on this $11.45 billion profit, Walmart paid $4.281 billion in corporate income taxes. That’s 37.4% of the profits that are paid to the federal and state governments. That leaves Walmart an after-tax profit margin of 1.4%!

And, of course, that doesn’t count all the OTHER taxes paid (and deducted before “profit” is calculated) — property taxes, inventory taxes, payroll taxes, insurance taxes, etc.

https://www.stock-analysis-on.net/NYSE/Company/Walmart-Inc/Financial-Statement/Income-Statement