From reddit user dwwo, This is way overgeneralizing and incorrect. As a business creator / owner (Ive started or been a partner in 6 start-ups and been an exec in 3 medium-large companies, some I know youve heard of), here are some points in response: * I never base wages on my corporate tax bracket. In fact, taxes are taken into account in primarily two ways (see below), and never influence hiring, operations, legal decisions, or growth (which is almost everything from expanding office space to staff, except for capital expenses, see below again). The only time taxes have ever, and I mean ever, been in any conversation is at the end of the year. Never has anyone in any company ever said, lets do or dont do X because of taxes, except at the end of the year when we have a bunch of money left over, and thats a good conversation to have. * Wages are based on market cost, i.e. what I have to pay to employ people vs. other companies that would pay to employ those same exact people, not my tax bracket. Its a market, pure and simple and if I hire someone its because there are more customers willing to pay our company for our business today or tomorrow than were yesterday, not because the tax rate is low or high. * Institutional investors (e.g. venture capitalist organizations), dont invest in companies that sell to the rich. Yacht builders dont need investors, they need bank loans, and they are going to employ 8 or 10 people, then thats it. Investors, who want to invest in a company thats going to grow to hundreds if not thousands of employees, then make a big exit, invest in companies that sell to the middle class. So a high marginal tax rate on businesses is of no concern. However a lower income tax rate on the middle class, the customers, is of great concern. You want to start a business and grow to be the next X? You need capital and a middle class that has disposable income. The taxes you pay is not a factor in your or your investors equation, ever. Simplified example: Buffet or Lynchs rule, if theres a line out the door of a place, invest in it. No successful investor thought, I bet they pay high taxes, so, never mind. * A new business pays almost no taxes. There is no barrier to entry because of taxes. Its actually the opposite, in that established businesses pay more taxes than start-ups, except for those in the news that offshore their huge cash profits, but thats not a majority of companies in the U.S. Thats our free enterprise system and it works. There are huge barriers to entry, however, due to capital investment and market establishment. Try writing an operating system today and selling it; its not taxes that keeps you from succeeding, its that its a big investment in time and money and there are others who have invested a ton of money and time that keeps you from succeeding. The tax structure, if it makes any difference at all, helps the start-up. * The idea that a high marginal tax rate causes expenditures to avoid paying taxes is true. Some of that money goes to lawyers, lobbyists, and accountants. So you are correct. That will always be true when its cheaper to hire those people than pay taxes. As a result [Reagan lowered the personal income rates](forbes/sites/janetnovack/2012/10/22/10-reasons-reagan-could-cut-the-top-tax-rate-to-28-but-romney-cant/) and shifted the tax burden to businesses, and that resulted in growth and prosperity. Note that small to medium, growing companies dont hire lobbyists. * The U.S. corporate tax rate used to be very low compared to other countries. [Then other countries lowered their rates and the U.S. didnt follow.](blog.heritage.org/wp-content/uploads/corp-tax-chart.gif) In other words, the U.S. didnt raise the corporate tax rates significantly, everyone else lowered theirs. * I, as a business owner, like the business tax. I hate paying taxes at the end of the year, it sucks thinking I earned all these profits and will get a distribution (i.e. dividend) and first have to pay a huge tax check. It pisses me and my accountant off every December. But what a lot of people dont know is that the company only pays taxes on profits, not revenue. If I had spent more money on hiring, rent, equipment, etc. then Id pay less taxes. And thats the idea. The company is incented to hire people, buy equipment, and otherwise spend money to grow the business. Because the company doesnt pay taxes on those expenses, only whats not spent. * So, per the previous point, taxes influence expenses, especially capital expenses at the end of the year. If we are going to buy a server and router in February, and we know for sure were going to do that, lets buy it now in December and take the tax break this year, when we have profits (or a higher tax bracket) rather than next year when we may not. Capital expenses and dividends are the two areas that the tax code influence business financial decisions. And the capital expenses are just shifting up expenses that would be paid anyway. Or would they? In fact its often best to defer those expenses until they are matched by income, so a high tax rate causes companies to spend more money, at some risk, than they would otherwise.
Posted on: Wed, 26 Mar 2014 00:40:08 +0000
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