The first item purchased to kick off the “poorman’s” magic multiplier, cost the retailer $.30. So his multiplier is 3.33 to arrive at a one dollar sale price. The same bump is done throughout the market in the example. Each business is restored with product, paid up in overhead, and saving a consistent 10% while producing 1.11 times the original wage in extra goods and services purchases within the market. MAGIC; now the sustenance of this market is dependent upon the cycle rate of wages and replacement goods. Maybe the “job” created by our purchaser lags a week or two behind the first purchases, in terms of stimulating an equivalent boost in wage purchases. But this kind of market is revved up and more than reproducing itself.
In the real world, there are taxes to cut down the wage before it is received. There will be taxes to cut down the savings at year end. There will be taxes to reduce the owners operating moneys (estimated tax on his business and his share of Social Security/Medicare and FICA taxes on the wages of his employees). For the employee, his share of Social Security/Medicare tax plus his federal and state withholding will be taken out of his pay. The employer would face 15% SS tax on his own salary plus a minimum of 15% income tax, or 30% of his income minimum for the first $100K of income, in federal tax alone. Employees might get to take home 80% of their pay. The average loss in taxes to both the owner and his employees might be 25% if the owner makes about the same as the sum of his employees. Such a reality puts a significant dent in our dream market. Assuming all available income is spent, then the pretax $1.33 times 75% is available to spend as $1.33 X .75 = $1 in purchases. To get our $1 to drive our model we need $1.33 to start with in wage. Then, inside the model, the wage driven part is depreciated to 75% its value going to the next box. For the 30 30 30 10 split and unity propensity to spend the new model looks like this
