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Will Business Tax Cuts Increase Wages For Workers?

by Teapot Harding (Principles: Shrinking Government) - 8 month ago

Greedy owners who pocket their tax cuts under the Tax Cuts and Jobs Act will soon be out of business. Those that hire more employees and raise wages will increase their profits.

It’s easy to criticize the tax reform bill currently working its way through Congress. In fact, any idiot can do it.

For example, did you hear the one about how the bill raises the minimum tax rate from 10% to 12%. Astounding! Those dastardly Republicans are actually raising taxes for the poorest Americans. Except of course….. it’s not true.  The minimum tax rate was and will be zero percent. People who were previously paying 10%, are now going to pay zero while those in the next bracket of 15% and some who were in the 25% bracket, will now pay 12%. Yes, everyone pays a lower rate.

But the individual tax rates are just a sideshow to the main complaint of the left that businesses are the ones who really benefit from this bill.  Businesses, as we know, are owned by greedy people who are just going to pocket the tax savings. Or, in other words (which I’m sure you’ve heard) It’s just another Republican giveaway to the rich.

Actually, this is just as false as the 10% to 12% nonsense and I can prove it.  

Let’s begin by accepting the hypothesis that all business owners are greedy. That, of course, is not true but it doesn’t really matter. Greedy owners will want to maximize their profits which means they’ll want to have as few employees as possible and pay them as little as possible.  This is precisely what has caused wages to remain basically stagnant for the past 30 years.

Now, however, we have a tax cut bill that does two things. First, it reduces taxes to a level that makes it attractive for U.S. companies to stay in the United States and for foreign companies to relocate here. Second, it increases the incentives for companies to earn bigger profits. There is always risk in starting and growing a business. The higher the tax rate, the less likely it is that business owners are going to take that risk. Conversely, by reducing profits, those greedy business owners have a greater incentive to  invest in growing their businesses.  

More companies operating in America and investing in growth means more jobs for our citizens. As the number of jobs increase, we will see an increase in the number of higher paying jobs and an increase in the leverage employees have to negotiate for higher salaries in their current jobs.  

But what about that greedy owner who pockets the extra tax dollars? Actually, that owner is more foolhardy than greedy. He will watch helplessly as new competitors steal his business and lure his best employees away with higher salaries.

So yes, reduced taxes on businesses will lead to increased wages for workers.  

Comments and Responses (3)

General Comments
By  Facebook Commenter - 8 month ago
To increase disposable income for the middle class, the government should increase the personal deduction, NOT the standard deduction, keep the SALT deduction, and lower the crowding out of investment dollars by the federal deficit which is killing jobs by reducing investment. A robust increase in the Earned Income Tax Credit would be a more effective and humane way to stimulate the economy than the trickle down measures passed Thursday, too. (RC)
Discussion Leader's Response : This comment is interesting but not directly relevant. (It might be a good topic for a new discussion)
Discussion Leader's Explanation : Nothing increases disposable income for the middle class more than good paying jobs. That's why this tax bill focuses on increasing incentives for businesses to locate here and expand. This will in turn create a cycle of a growing economy which ultimately begins to reduce the federal deficit. We'll also need other ways to reduce the deficit including a more rational Medicare and Social Security system. And less spending. All of that will be done in future legislation. As to your specific suggestions concerning credits and deductions, I can see the logic behind them but I can see the logic behind most of the 1000s of provisions cluttering the tax code. How much easier will it be to do deficit reduction if we are dealing with a simplified code? Answer, a lot easier. Start by creating more jobs and then everything else will fall into place.
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By  Facebook Commenter - 8 month ago
Not pass the current tax bill, but change it to include true tax cuts for incomes up to $75k, and close corporate tax loopholes that bring true corporate taxes to less than 20%, ensuring that corporations and top 1% income pay their FAIR share, and stop them being able to put high profits offshore on which they pay no tax. Give workers a living wage, and adequate hours to be able to live on, not 25 or 30 hours a week, but 40, and pay overtime plus benefits. Give workers a reason to try harder with meaningful, merit increases. That way, families will be able to purchase more (clothing, furniture, appliances, gifts) which will increase corporations' sales, prompting those corporations to add staff &/or factories, and so on. (PQ)
Discussion Leader's Response : This comment is relevant to the discussion. (Commenter's rating is increased.)
Discussion Leader's Explanation : The current tax bill does eliminate several corporate loopholes and brings the corporate tax rate to 20%. It also includes provisions which force companies to bring their profits home. So on those points, the tax bill is meeting your goals. I did get a chuckle out of your suggestion that the government force companies to give meaningful merit increases when the government itself doesn't give merit increases. I believe it's counterproductive to mandate how companies deal with their employees. The more laws we have that limit the ability of our companies to operate profitably in the U.S., the more jobs are going to be shipped abroad. Let's provide maximum incentive for them to stay here and then the government should get out of the way and let businesses compete for our American workforce.
Reasoning used for ARGUMENTS presented
By  Facebook Commenter - 8 month ago
If you frame it from a competition standpoint, even more "NO". Corporations took their profits and used them to buy politicians, who weakened anti-trust rulings, in order to weaken and eliminate competition precisely so the DON'T have to do anything they don't want to, unless it is a DIRECT regulation. (BE)
Discussion Leader's Response : This comment is relevant to the discussion. (Commenter's rating is increased.)
Discussion Leader's Explanation : I can't disagree with you that corporations are going to use some of their profits to lobby for laws and regulations that further increase their profitability - BUT THEY ARE ALREADY DOING THAT. Once this bill is passed, the corporations will have a stake in making sure that it does increase wages because if wages stay stagnant, no amount of lobbying dollars will prevent Democrats from coming back into office and raising the tax rates again. As to direct regulations, all I can say is that we've had 16 years under Clinton and Obama where regulation was piled on top of regulation and wages barely grew. The only ones who made money were the class action attorneys.