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Comment by TangoTrotFox | Hacker News Reader

I prefer to avoid calling things dumb, but I tend to agree this does sound like it fits the bill. Any clarification would be appreciated. Companies are taxed on net. This sort of itemization makes no sense. So for instance imagine a company that grosses $250 in sales with total before tax costs of $100 in labor and $50 in other costs. With a 30% tax rate, their after-tax net is $70. With a 20% tax rate, it's $80. Suggesting that a company might, for any reason, prefer the 30% scenario does seem quite absurd unless I'm missing something critical here.

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>So for instance imagine a company that grosses $250 in sales with total before tax costs of $100 in labor and $50 in other costs. With a 30% tax rate, their after-tax net is $70. With a 20% tax rate, it's $80.

cutting those $100 of labor leaves you with $140 in 30% scenario vs. $160 in 20% case. The similar goes for capital investments with associated depreciation. This is why tax cuts is the time to take money out of business through dividends, buybacks, etc. and not the time to expand the business (i.e. not the time for additional employees and capital investment). It does put comparatively higher pressure to increase productivity using existing employees on/in existing machinery/buildings/etc.

This has nothing to do with labor. Lower tax rates simply mean you take home more of every dollar you earn. For instance if you cut your overhead by $10 now you take home (just looking at that value in a vacuum) $8 instead of $7. That obviously does not imply your overhead costs were lower when tax rates were higher.

>For instance if you cut your overhead by $10 now you take home (just looking at that value in a vacuum) $8 instead of $7.

and if you add $10 overhead your take home will get $8 less instead of $7. Either way that $10 overhead is $1 more expensive in the case of lower tax rate.

No, it's not. That money is lost to the government, not to your actual costs (labor/goods/etc). To illustrate the point clearly imagine I'm a robber. Each time I see you get paid I come and rob you. I take 30% of everything in your wallet. If I suddenly stop robbing you, you're suggesting that now all of your costs would increase. This is obviously not rational.

>That money is lost to the government, not to your actual costs (labor/goods/etc).

as long as the money is lost ... I'm not arguing that sticker price of that employee went up. I'm saying that my net total changes differently while i'm paying the same sticker price. In the case of lower taxes my total decreases more when i pay the same sticker price. Thus it is more costly to me.

> If I suddenly stop robbing you, you're suggesting that now all of your costs would increase.

Obviously. For better illustration lets say you take 90%. Before, for every $1 paid in my costs, my end total was decreasing by $0.1 and you were losing $0.9. Once robbing stops my total would be decreasing $1 for each $1 paid in my costs.

So, in order to obtain the same thing, in one situation i'd loose $0.1 and in another - $1. I.e. in one situation the same thing is 10 times cheaper for me than in the other.

That's not the suggestion.

The suggestion is that the net added cost (after taxes) of an added unit of labor on its own is greater with a lower tax rate, not that a profitable company's overall position with the same pre-tax choices is worse with the lower tax rate.

that may be true, but is there any part of this argument specific to labor?

could it be the case that tax cuts also made non-labor expenses more expensive? could revenues in turn also become more, er, revenue-ive?

> that may be true, but is there any part of this argument specific to labor?

No, that it is true of labor doesn't require that it be unique to labor.

I'd argue that mentioning that labour becomes more expensive after tax cuts, while glossing over that the same amplification happens to other non labour expenses and other revenues, is a rhetorical trick that doesn't really help a clear discussion of reality.

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.

>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.

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.

>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.

> 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.)

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