6 ms·

How does giving companies more money automatically make employees more expensive? That's extremely counter-intuitive.

dragonwriter 8y ago
> How does giving companies more money automatically make employees more expensive? Giving companies more money by itself (e.g., “here, have $100,000 no strings attached”) doesn't. OTOH, taxing retained profits at a lower rate does (it increases the after-tax cost of any reduction in before-tax retained profits; any expense is, considered on its own, a reduction in before-tax retained profits.) In exactly the way deductibility of charitable donations subsidizes such donations at the taxpayers marginal tax rate deductibility of business expenses subsidizes such expenses at the businesses marginal tax rate, and cutting the tax rate cuts the subsidy.
- daveFNbuck 8y ago
  I think I get what you're saying. The savings from not paying the employee are increased when the profits are taxed less. This makes sense if the employee is a net negative on pre-tax profit. If having the employee increases pre-tax profit, wouldn't lower taxes on profits make them effectively cheaper?
  - trhway 8y ago
    >If having the employee increases pre-tax profit, wouldn't lower taxes on profits make them effectively cheaper? in a situation of rigid linear connection between expenses and revenues - i.e. when adding additional work units immediately and proportionally increases your revenue. In real life there is usually elasticity between expenses and revenues - while increasing/decreasing expenses has immediate direct effect on the bottom line there is no such effect on the top line. The situation is even worse when you need to hire or do capital investment today (and thus take the hit today) while the related revenue increase would come only some years down the road.
    - daveFNbuck 8y ago
      So this is part of a more general effect where low taxes on profits deter investment? It makes a little more sense to me phrased that way. You don't need to worry about increasing your future profits as much when they're higher now.
usrusr 8y ago
It's intuitive iff you believe that paying taxes on profits is worse than not even having any profits to tax. (I don't share that belief)
- trhway 8y ago
  whatever one's beliefs are, it is very intuitive to everybody what is going to happen to charitable contributions if the tax deduction is removed. In accounting grand scheme of things employee salaries, materials, depreciation of capital assets, etc is just the same thing as charitable contributions - just deductions.
  - usrusr 8y ago
    That would only be a meaningful comparison if we were talking about wether or not money a business doesn't have because it was spent on wages should nonetheless be counted as taxable earnings.
    - trhway 8y ago
      >money a business doesn't have because it was spent on wages should nonetheless be counted as taxable earnings. that is exactly how it works. All business revenue is counted as taxable earnings unless that amount is reduced by deductions. Money spent on wages is just a such a deduction. Charitable contributions is just another such a deduction. No difference.
      - usrusr 8y ago
        And that's the point, nobody is challenging that, for good reason. Changing the deductibility of charitable contributions would be just like that, a redefinition of the tax base. The tax base is orthogonal to the tax rate, which is why decreasing the corporate tax rate does not make employees more expensive. (well, occasionally the idea of gross revenue taxation sparks up, but I have not seem that anywhere in this discussion, and it never survives the first mentioning of vertical integration anyways)

> How does giving companies more money automatically make employees more expensive? Giving companies more money by itself (e.g., “here, have $100,000 no strings attached”) doesn't. OTOH, taxing retained profits at a lower rate does (it increases the after-tax cost of any reduction in before-tax retained profits; any expense is, considered on its own, a reduction in before-tax retained profits.) In exactly the way deductibility of charitable donations subsidizes such donations at the taxpayers marginal tax rate deductibility of business expenses subsidizes such expenses at the businesses marginal tax rate, and cutting the tax rate cuts the subsidy.

daveFNbuck 8y ago
I think I get what you're saying. The savings from not paying the employee are increased when the profits are taxed less. This makes sense if the employee is a net negative on pre-tax profit. If having the employee increases pre-tax profit, wouldn't lower taxes on profits make them effectively cheaper?
- trhway 8y ago
  >If having the employee increases pre-tax profit, wouldn't lower taxes on profits make them effectively cheaper? in a situation of rigid linear connection between expenses and revenues - i.e. when adding additional work units immediately and proportionally increases your revenue. In real life there is usually elasticity between expenses and revenues - while increasing/decreasing expenses has immediate direct effect on the bottom line there is no such effect on the top line. The situation is even worse when you need to hire or do capital investment today (and thus take the hit today) while the related revenue increase would come only some years down the road.
  - daveFNbuck 8y ago
    So this is part of a more general effect where low taxes on profits deter investment? It makes a little more sense to me phrased that way. You don't need to worry about increasing your future profits as much when they're higher now.

usrusr 8y ago

It's intuitive iff you believe that paying taxes on profits is worse than not even having any profits to tax. (I don't share that belief)

trhway 8y ago
whatever one's beliefs are, it is very intuitive to everybody what is going to happen to charitable contributions if the tax deduction is removed. In accounting grand scheme of things employee salaries, materials, depreciation of capital assets, etc is just the same thing as charitable contributions - just deductions.
- usrusr 8y ago
  That would only be a meaningful comparison if we were talking about wether or not money a business doesn't have because it was spent on wages should nonetheless be counted as taxable earnings.
  - trhway 8y ago
    >money a business doesn't have because it was spent on wages should nonetheless be counted as taxable earnings. that is exactly how it works. All business revenue is counted as taxable earnings unless that amount is reduced by deductions. Money spent on wages is just a such a deduction. Charitable contributions is just another such a deduction. No difference.
    - usrusr 8y ago
      And that's the point, nobody is challenging that, for good reason. Changing the deductibility of charitable contributions would be just like that, a redefinition of the tax base. The tax base is orthogonal to the tax rate, which is why decreasing the corporate tax rate does not make employees more expensive. (well, occasionally the idea of gross revenue taxation sparks up, but I have not seem that anywhere in this discussion, and it never survives the first mentioning of vertical integration anyways)