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Doesn't lowering business tax rates INCREASE *UN*EMPLOYMENT?

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FormerDittoHead Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 03:08 PM
Original message
Doesn't lowering business tax rates INCREASE *UN*EMPLOYMENT?
Edited on Wed Jan-26-05 03:10 PM by FormerRushFan
OK, I really don't know about this one, esp since I don't employ anyone.

Furthermore, perhaps this would be better put in the "Frame the Debate" group, but I'm shakey on my thinking here, and I'm willing to stand corrected.

During the push to lower taxes on the rich, the justification was made by asking the question, "When has a POOR man given you a job?"

The implication was simply that if the gov't were to give the rich tax breaks, they can then 'afford' to hire more people.

Let's put aside the fact that businesses hire more people when DEMAND calls for increased production... That's not the point here.

Anyway, I was deciding whether or not to buy a new desk for my business. It would be expensed, and I started to think in terms of the after-tax 'net' cost, seeing that I could deduct it. (let's forget about depreciation here, just talk expenses)

I figured that, at $1,000, it would reduce my after tax income, by $720, the $280 would be less taxes I would pay.

Then it hit me. The HIGHER the tax rate, the easier it would be for me to make the purchase! If my taxes were say, 50%, then the after-tax cost of buying the desk would be $500!

So, briefly this time, am I thinking that if a business is on the 'bubble' for hiring more people, the LOWER their tax rate the *LESS* LIKELY they will hire them?

Or am I completely screwed up here...
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Squatch Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 03:11 PM
Response to Original message
1. Businesses do not pay taxes...
they pass the expense of taxes on to their customers.
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Selteri Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 03:17 PM
Response to Reply #1
2. Yes, it's called cyclical business.
A very accurate business theory that has been abandoned because corporations have learned new ways to become monopolies without being monopolies.
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FormerDittoHead Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 04:55 PM
Response to Reply #1
4. Not always true...
Prices of goods and services are not *all* "cost plus mark-up".

Pricing (what consumers pay) is much more complicated that that.

Competition more often sets the price of goods than a business's expenses, and that competition can come from other countries.

Demand often is what sets the cost charged to consumers. Regardless of expenses, for some goods and services, businesses can only charge a set amount for some things, if people are simply unwilling to buy things above a certain price.

Also, what some businesses pay in taxes is significantly different from others selling the same goods. Do they reduce their prices for paying lower taxes? HELL NO!

To conclude: business taxes are NOT simply passed along to the customer.
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bemildred Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 05:01 PM
Response to Reply #1
5. Taxes are not an expense.
Tax (income tax anyway) is applied to income, after expenses are
deducted, hence taxes cannot be passed along, as they are not known
until revenue and expenses are determined. What usually happens when
taxes are raised is that more of the revenue pie is diverted into
things that are deductible (expenses like wages and investment)
instead of being taken as profit and removed from the business.
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papau Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 03:30 PM
Response to Original message
3. Afford to hire does not equal hire unless sales are anticipated - and
Gov deficits kill the economy so no sales jumps are anticipated.
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FormerDittoHead Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 05:02 PM
Response to Reply #3
6. Yes, but Gov Deficits CAN stimulate the economy...
...if tax cuts were to increase DEMAND.

Giving those tax cuts to those who need it the most (those who would SPEND it) WOULD increase demand and companies *would* hire more to meet the greater demand.

The rich, however, don't spend all their money *as* *it* *is* - demand doesn't increase giving THEM a tax break...

That wasn't really the point of the OP, however... :-(

I'm was wondering if IN ADDITION to this point of demand, that a *higher* marginal tax rate indeed INCREASES employment rather than decrease it, as the right suggests...
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papau Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jan-26-05 07:08 PM
Response to Reply #6
7. If it brings currency stability and interest rate stability a higher tax
the rich will indeed increase employment because it will increase economic activity.

The actual level of interest rates will rise as economic activity increases - but only to a range appropiate to the level of economic activity.

And interest rates will be in the lower part of that range if people see less demand for capital by the Federal Government in the future - meaning the economy will advance faster as it will be easier to show you beat the 10 year projected interest rate hurdle that management wants new capital investment to achieve before they commit to the new investment.
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