ECON 101: Tax cuts create a DIS-incentive to hire workers

[BlueStreak]

11. Of course you expect the marginal employee to generate marginal revenue.

The point is that if tax rates are higher, the net after-tax cost to you for that marginal employee is lower. Higher tax rates provide more of an incentive to reinvest in the business. Lower tax rates provide an incentive to take money OUT of the business.

I agree that this should not be (and generally is not) the primary factor for making hiring decisions. But the point is that lower tax rates do not create any incentives for investing in the business. If we really wanted to use the tax code to encourage employment, then we would create a provision that gives companies direct tax credits for every new job created or repatriated from off shore.