Tax Cuts = Jobs?
Maybe I don’t fully understand the economics behind how tax breaks for corporations create jobs, but it seems fundamentally flawed to me. I understand some accounting and how businesses are structured, so I’ll clue you into my thought process.
A company develops a product. If there is a demand for their product they’ll begin to produce it and will hire people to do so. Employee wages, equipment, facilities and other expenses are incurred in the creation of the product. These will help to determine the price they charge for the product.
Now at year’s end they’ll report their earnings for tax purposes. The company will add up all the money from the sale of their product, and then subtract the expenses involved in making said product. This is called their net income, and this is what the company will pay taxes on. (This is overly simple, but a good overview)
Now what if they make 100,000 units and there is still demand? The company is making the largest possible amount of products it can with the people it has. To meet the demand they’ll need to hire more people. They can choose not to hire people, and will leave unmet demand on the table. More simply, the company leaves money on the table.
So how does the amount of taxes effect job growth? There is no way to know how much money they will make, because demand can change. A company creates jobs because they NEED those jobs. If they don’t hire people they are leaving all sorts of potential profit on the table.
It doesn’t make logical sense to me that tax cuts create jobs. Even tax cuts for the super rich won’t create jobs. Businesses pay people, not the people who run that business. The money I make and pay taxes on has nothing to do with what I pay my people.
