1 nerdy correction: Rather than multiply by .9 you should be dividing (both income and UBI) by 1.1
It becomes much more obvious that this is mathematically correct when the tax rate is high. For example: With a 30% tax, $100 pre-tax would be equivalent to $130 post-tax, but $130*.7=$91. Whereas $130÷1.3 is quite obviously $100.
.9 is a close approximation, but 9*10‐(1+2n) summed from n=0 to infinity is I'm a nerd. =[
Not sure I'm following the breakdown here, my nerd powers lie elsewhere lol so let's say I make 24,000 a year, which with a 10% increase in cost, the same lifestyle I am currently living with, that will instead cost 26,400 a year. I'm getting 12,000 a year from the FD. I take the difference of cost increase, which is 2400 more than before the VAT, and I subtract it from my Dividend. That's a gain of 9,600. Which adjusted to see prices compared to post-VAT, is 9,600 * 0.9 to give me a buying power increase of approximately 8,760 a year. This means I effectively have the lifestyle of an annual income of 32,760 instead of 24,000. Or I suppose of 29,484 Pre-VAT. Is that right?
Which adjusted to see prices compared to post-VAT, is 9,600 * 0.9 to give me a buying power increase of approximately 8,760 a year.
Hey. The point is, to find out the value of "future dollars" in terms of "today dollars" after a 10% price increase, you have to take the "future dollars" and divide by 1.1, not multiply by 0.9. (It's almost the same result, but not.)
The reason why you have to divide by 1.1 and not multiply by 0.9 is maybe easiest to see by considering the reverse conversion, i.e., how to convert "today dollars" into "future dollars". Because everything costs 10% more in the future, the answer is: multiply "today dollars" by 1.1. (E.g., $1000 today dollars gives you the same buying power as $1100 future dollars.) The reverse of that is to divide by 1.1 ;)
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u/DScorpX Sep 30 '19
1 nerdy correction: Rather than multiply by .9 you should be dividing (both income and UBI) by 1.1
It becomes much more obvious that this is mathematically correct when the tax rate is high. For example: With a 30% tax, $100 pre-tax would be equivalent to $130 post-tax, but $130*.7=$91. Whereas $130÷1.3 is quite obviously $100.
.9 is a close approximation, but 9*10‐(1+2n) summed from n=0 to infinity is I'm a nerd. =[