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Okay? So let's say each employee costs $10 pretax. We add two employees in the same scenario where we started with a company that has $250 in sales with costs o

Okay? So let's say each employee costs $10 pretax. We add two employees in the same scenario where we started with a company that has $250 in sales with costs of $100 in labor and $50 in other costs. All that has changed is that the company now has $120 in labor costs. Their net income with a tax rate of 30% is now $56. Their net income with a tax rate of 20% is $64. Please do elaborate with any example that could make what you're saying seem reasonable.

trhway 8y ago
>All that has changed is that the company now has $120 in labor costs. Their net income with a tax rate of 30% is now $56. Their net income with a tax rate of 20% is $64. these 2 employees decreased the net income by $14 in 30% case and by $16 in 20%. Granted the high margin business in your example can absorb it. Without high margin the business must increase productivity to mitigate such a higher labor cost caused by the lower tax rate.
- TangoTrotFox 8y ago
  This is completely illogical. The reason you're earning more money is simply because you are giving away less to the government - not because your actual costs change in any way whatsoever. This has nothing at all to do with labor costs. You can apply the exact same logic to absolutely anything. E.g. if your cost of materials increases by $20 instead of your cost of employees. This doesn't mean you're paying more, or less, for these materials - simply that are not obligated to give away as large a share of your profits from any change in costs.
  - trhway 8y ago
    >You can apply the exact same logic to absolutely anything. Of course. See my other post where i mention capital investments for example. > E.g. if your cost of materials increases by $20 instead of your cost of employees. yep. in case of 20% tax the net cost of the materials is $16, in case of 30% - $14. >This doesn't mean you're paying more, or less, for these materials - simply that are not obligated to give away as large a share of your profits from any change in costs. call it any way. In the end paying $20 for materials results in $16 decrease to the resulting after-tax business profit in one case and $14 decrease in another. Thus the materials became $2 more expensive to the business.
dragonwriter 8y ago
> Please do elaborate with any example that could make what you're saying seem reasonable. You just provided an example: in the 20% scenario you describe, they sacrifice $14 for the additional workers in the 30% tax scenario and $16 for them in the 20% scenario. (Now, obviously, they do that in the expectation of future income that the work will provide; if that's immediate, then that income has to be considered, too, and will actually make hiring make more profitable in the low tax condition; if the income is delayed, then expectations of future tax rates come into play; the farther out the payoff is, the less dependent on current tax policy the future expectation is, making the current tax relevant only to the near term cost not the log term benefit weighed against it—so, it's where hiring today is done for a long-term rather than immediate revenue boost where lower current taxes are, relatively speaking, a disincentive.)

trhway 8y ago

>All that has changed is that the company now has $120 in labor costs. Their net income with a tax rate of 30% is now $56. Their net income with a tax rate of 20% is $64. these 2 employees decreased the net income by $14 in 30% case and by $16 in 20%. Granted the high margin business in your example can absorb it. Without high margin the business must increase productivity to mitigate such a higher labor cost caused by the lower tax rate.

TangoTrotFox 8y ago
This is completely illogical. The reason you're earning more money is simply because you are giving away less to the government - not because your actual costs change in any way whatsoever. This has nothing at all to do with labor costs. You can apply the exact same logic to absolutely anything. E.g. if your cost of materials increases by $20 instead of your cost of employees. This doesn't mean you're paying more, or less, for these materials - simply that are not obligated to give away as large a share of your profits from any change in costs.
- trhway 8y ago
  >You can apply the exact same logic to absolutely anything. Of course. See my other post where i mention capital investments for example. > E.g. if your cost of materials increases by $20 instead of your cost of employees. yep. in case of 20% tax the net cost of the materials is $16, in case of 30% - $14. >This doesn't mean you're paying more, or less, for these materials - simply that are not obligated to give away as large a share of your profits from any change in costs. call it any way. In the end paying $20 for materials results in $16 decrease to the resulting after-tax business profit in one case and $14 decrease in another. Thus the materials became $2 more expensive to the business.

dragonwriter 8y ago

> Please do elaborate with any example that could make what you're saying seem reasonable. You just provided an example: in the 20% scenario you describe, they sacrifice $14 for the additional workers in the 30% tax scenario and $16 for them in the 20% scenario. (Now, obviously, they do that in the expectation of future income that the work will provide; if that's immediate, then that income has to be considered, too, and will actually make hiring make more profitable in the low tax condition; if the income is delayed, then expectations of future tax rates come into play; the farther out the payoff is, the less dependent on current tax policy the future expectation is, making the current tax relevant only to the near term cost not the log term benefit weighed against it—so, it's where hiring today is done for a long-term rather than immediate revenue boost where lower current taxes are, relatively speaking, a disincentive.)