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FACT CHECK: RAISING taxes actually reduces the marginal cost of hiring new employees.

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ddeclue Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-08-10 10:12 AM
Original message
FACT CHECK: RAISING taxes actually reduces the marginal cost of hiring new employees.
Edited on Wed Dec-08-10 10:13 AM by ddeclue
Companies pay taxes on their PROFITS.

PROFITS by definition are what is left over from sales after you pay the bills - that includes PAYROLL.

If your company makes $1 million a year in sales and spends:

$600,000 on 20 employees @30k/yr.
$200,000 on materials
$100,000 on real estate, insurance, utilities, etc.

and the profit is then $100,000.

If your company paid 30% tax on that $100,000 then it would pay 30,000 and the after taxes profit would be 70,000.

If your company paid 40% tax on that $100,000 then it would pay 40,000 and the after taxes profit would be 60,000.

Now if your company hired an additional employee at 30,000 the profit would be 70,000.

At 30% taxes it would pay 21,000 and the after taxes profit would be 49,000.

At 40% taxes it would pay 28,000 and the after taxes profit would be 42,000.

The marginal cost of hiring an additional employee at the 30% tax rate then be the difference between the after tax profits or 70,000 - 49,000 or 21,000.

The marginal cost of hiring an additional employee at the 40% tax rate is 60,000-42,000 or 18,000.

In short raising the taxes 10% reduced the marginal cost of hiring a new employee by 10% of their salary or $3,000 in this example.

In short the higher the tax rate the more incentive a company has to hire someone because more and more of that money would just be paid in taxes to the government anyways.

The truth is that RAISING taxes is the key to lowering unemployment. Raise the taxes, use the money to hire people to work on infrastructure projects and put demand back into the economy through their spending and INCENTIVIZE private companies to hire people because otherwise that money would go to the government anyways in taxes.
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crikkett Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-08-10 10:13 AM
Response to Original message
1. Hiring employees is not a business marginal cost, but
Edited on Wed Dec-08-10 10:14 AM by crikkett
I thank you for posting your line of reasoning.
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wtmusic Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-08-10 10:14 AM
Response to Original message
2. But...but...then we would have to hire our "private contractors" and give them health
:thumbsup:
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Oceansaway Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-08-10 10:20 AM
Response to Original message
3. K&R...n/t
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Bandit Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-08-10 11:16 AM
Response to Original message
4. That is EXACTLY how it worked under The Clinton Administration
Clinton raised taxes on the wealthy which was billed as the biggest tax increase in History at that time and because of it the USA went on to experience the "Greatest Economic Expansion in History" and over twenty two million jobs created. Just the exact opposite of what Republicans said at the time and what they are saying now..
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