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I'm probably misunderstanding, but it doesn't seem like the new tax code actually encourages companies to invest in their employees like this, since corporate i

I'm probably misunderstanding, but it doesn't seem like the new tax code actually encourages companies to invest in their employees like this, since corporate income tax is applied to profit, not revenue. Since employee pay is tax deductible, there is a higher marginal cost to giving your employees a raise. Say you're Barstucks Coffee Co and you make $100 / yr in revenue, of which $60 goes to your employees and $40 is profit (assume no other expenses). Under a 35% corporate tax regime, the after-tax profit is $26. Let's say you give out a pay raise, increasing pay expenditure to $80. That leaves $20 in profit, $13 after tax. So it cost you $13 to put out that raise. Compare to a 20% [1] tax regime. With $60 / yr to your employees, you get $32 in after tax profit. Increase that to $80 / yr, and you only take home $16 after tax. So it cost you $16 this time around to give your employees a pay boost. Sure, you're making more overall, but there's more disincentive to give a cut of that profit to your employees. What gives? [1] Actual rate from the new plan is 21%.

meritt 9y ago
> What gives There's a tightening labor market and Starbucks has a long history of compensating employees relatively well with annual raises/benefits/401k/etc. They gave every employee a 5% or better raise in October 2016 and everyone received a raise in January 2015 too. There's no correlation to tax cuts aside from articles like this and supporters who will point to it as proof of success.
meri_dian 9y ago
In a strong economy like our current one, upward pressure on wages overpowers downward pressure. When there is a tax cut, that net positive pressure doesn't disappear. So in the lower tax world a business can give in to wage pressure with less cost to itself than in the higher tax world. Now in the lower tax world there is also the allure of higher profit without any wage increase as compared to the higher tax world, so the issue becomes one of balancing the desire to give in to wage pressures and the desire to increase profits which is a decision that must be made on a company by company basis.

meritt 9y ago

> What gives There's a tightening labor market and Starbucks has a long history of compensating employees relatively well with annual raises/benefits/401k/etc. They gave every employee a 5% or better raise in October 2016 and everyone received a raise in January 2015 too. There's no correlation to tax cuts aside from articles like this and supporters who will point to it as proof of success.

meri_dian 9y ago

In a strong economy like our current one, upward pressure on wages overpowers downward pressure. When there is a tax cut, that net positive pressure doesn't disappear. So in the lower tax world a business can give in to wage pressure with less cost to itself than in the higher tax world. Now in the lower tax world there is also the allure of higher profit without any wage increase as compared to the higher tax world, so the issue becomes one of balancing the desire to give in to wage pressures and the desire to increase profits which is a decision that must be made on a company by company basis.