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Please read the entire post before commenting. I want to have a serious discussion and if I see you just read the first couple sentences, I'll just ignore it. Thanks!
The GOP argument: If taxes increase 5% on businesses, they will fire some of their employees to make up for having to pay more in taxes. This will lead to more unemployment, less taxpayers, more people on welfare, and hurt our recovery. This is the basic argument from the GOP. As a business owner whose owned multiple businesses with employees ranging from 7 to 80, I can say this is not reality. Taxes are a burden and of course if I could pay less in taxes, I would. However, the tax rate doesn't effect hiring or firing of employees.
My argument: We have owned numerous businesses from restaurants, retail stores and a hotel. Nobody wants to pay more in taxes than what is required (besides a few billionaires). With that being said, no business owner I know including us would fire employees if taxes increase. If demand is there, why would any business owner want to fire some of their employees which will result in less production thus less revenue. Especially over a 5% increase. It's annoying, but doesn't make it worth closing shop or wanting to stop growth.
The reality is if taxes increase, we increase our write offs by investing back into the business, boosting our own salaries, and anything else that makes sense in order to increase our expenses. We want to increase our expenses, so we will have less taxable income. However, it's not harming our business because by investing back into the business etc we are adding long term value.
Taxes are paid on net income. It doesn't make sense to say "okay taxes are increasing, so let's save money by cutting our workforce in order to offset the increase in taxes". This should make NO sense to any business owner.
1. You are lowering your production, which means you won't be able to handle the same amount of revenue.
2. You are lowering your expenses BEFORE you report taxable income, therefore increasing your taxable income.
You LOSE either way. Say #1 occurs, now instead of revenue of $2 million you now report revenue of $1.75 million. Say #2 occurs, now instead of paying tax on $2 million, you now pay tax on $2.25 million.
I honestly want to know if this makes sense to people out there.
I've heard your argument presented numerous times by many people, but from my experience demand is the only factor that drives hiring or firing of employees.
Pretend you owned a 5 star resort in the boondocks of Nevada and for free could transport it to downtown San Francisco. You would be a fool not to take that offer even though your tax rate would increase increase 10%+ because demand would allow you to increase your rates 10x and your net income after taxes would still be significantly higher.
My argument isn't whether increasing taxes on the top bracket is fair or not, its simply... increasing taxes will NOT kill jobs because demand is the factor in job creation or elimination.
And taxes are not paid on net income. Taxes are paid on income before taxes or operating income. Net income is the bottom line after taxes.
Taxes are a cash expense. The only way to generate the cash to pay them is to have enough free cashflow to cover the tax burden. If you can build it into the price, then it is effectively paid by the consumer. Market conditions might force a company with a higher marginal tax rate out of business. If I provide a product here, the global company who can park those sales tax-free (or at a lower rate) oversees has a potential price advantage because his total cost structure including taxes is lower.
I'm a small business owner, and I agree that it won't hurt in terms of businesses paying a little more in taxes--nobody fires employees over a small increase in the cost of doing business, especially if cutting that employee would reduce your ability to meet demand. It wouldn't even make economic sense. I wouldn't like it, and I might raise my prices slightly to cover the increased cost, but it wouldn't be the end of the world.
However, I am more concerned about how increased taxes would impact the purchasing power of middle class homes. If you increase taxes and families have less disposable income, that COULD severely impact many small businesses and become a job killer--many families are living on the edge right now as it is, and if you tax them more they will simply stop spending except for necessities. I see that as much more of a job killer than direct taxation of the business. You can work with a small increase in overhead, but you can't work around losing your customers.
Your question refers to existing businesses only. Imagine a prospective venture whose owners require a 10% return after taxes. If the tax rate goes from 30% to 35%, the return drops to 9.3% and the business does not get started.
Your question refers to existing businesses only. Imagine a prospective venture whose owners require a 10% return after taxes. If the tax rate goes from 30% to 35%, the return drops to 9.3% and the business does not get started.
I understand this argument, but if it were true, Silicon Valley wouldn't be the startup capital of the United States. I think access to an educated workforce and available funds plays a much larger force on where to start a startup such as Netflix, Facebook etc.
Anyone have an opinion?
This is an argument the GOP candidates make during every debate.
I'm not reading that whole thing, sorry. The post was way too long for an initial post.
Taxes do lower GDP. Reduced spending also lowers GDP. The latter seems to have a higher multiplier when doing so.
Your arguments about your business make sense somewhat, but we're not talking about businesses here since they are largely incorporated. Only a few businesses of any size would be unincorporated. Corporations don't pay personal income tax.
I'm a small business owner, and I agree that it won't hurt in terms of businesses paying a little more in taxes--nobody fires employees over a small increase in the cost of doing business, especially if cutting that employee would reduce your ability to meet demand. It wouldn't even make economic sense. I wouldn't like it, and I might raise my prices slightly to cover the increased cost, but it wouldn't be the end of the world.
However, I am more concerned about how increased taxes would impact the purchasing power of middle class homes. If you increase taxes and families have less disposable income, that COULD severely impact many small businesses and become a job killer--many families are living on the edge right now as it is, and if you tax them more they will simply stop spending except for necessities. I see that as much more of a job killer than direct taxation of the business. You can work with a small increase in overhead, but you can't work around losing your customers.
I agree with you. Demand is everything when it comes to hiring/firing. If the tax increase makes your customers spend less, than that will decrease demand, which will cause you to look into increasing prices, cutting payroll etc.
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