Explain the Higher Tax = Layoffs Argument to Me

[Chiropteran]

I just don't get it.

The argument I hear: company will make less money, so we won't afford as many employees. By firing some of those employees we can save money and get back to our pre-price increase revenue.

What I don't get: if the company can fire people and increase revenue with no negative side effects, why isn't the company doing it already without the tax increase? If firing a guy gives you more money at the increased tax rate, at the existing (lower) tax rate firing a guy will get you even more money, since it won't be taxed as much.

 

[xBiffx]

no negative side effects

The flaw in your logic is right there. There are, of course, negative side effects, biggest being lower production. But the cost of lower production is much less that the cost of keeping the employees on and paying their salaries. It a lose-lose, but companies are always trying to mitigate the loss.

 

[brandonbull]

Because those $100k Mercedes don't pay for themselves.

 

[Deudalus]

Economics 101........

Corporations, companies, people, families, and pretty much every entity other than the government cares about the bottom line. They all have budgets for EVERYTHING.

Google, Apple, Intel, down to your local Subway they all have budgets that they must keep costs in line with.

When costs go up be it from raw goods, taxation, labor costs, or any of a number of other things then some effect happens as a result of that cause.

They may determine demand is high enough (right now in this economy not likely) to simply increase cost a bit and not change the work force. Intel might do this with Windows 8 for example because there is virtually no competition.

They may not hire someone who they planned to hire or they may fire someone they feel they do not need and push their work one others. Your companies that fight tooth and nail with each other likely go this route.

The reason the economy is not growing faster is due to fear of long term lower demand, both local and worldwide, for goods and also the lack of ability to forecast cost down the road.

What the Congressional Budget Office does a very poor job of (forecasting cost) all other companies large and small must do a great job at.

As of right now due to changing regulation and new laws they are having a hard time forecasting demand and cost and until they can feel safer doing these things people will not be hired.

The reason government does not understand this is because they do not run like a business and they do not care about budgets and bottom lines.

Its likely trying to get an Eskimo to pack for an African Safary, they simply have no idea how to look at it.

 

[Phokus]

Economics 101........

Corporations, companies, people, families, and pretty much every entity other than the government cares about the bottom line. They all have budgets for EVERYTHING.

Google, Apple, Intel, down to your local Subway they all have budgets that they must keep costs in line with.

When costs go up be it from raw goods, taxation, labor costs, or any of a number of other things then some effect happens as a result of that cause.

They may determine demand is high enough (right now in this economy not likely) to simply increase cost a bit and not change the work force. Intel might do this with Windows 8 for example because there is virtually no competition.

They may not hire someone who they planned to hire or they may fire someone they feel they do not need and push their work one others. Your companies that fight tooth and nail with each other likely go this route.

The reason the economy is not growing faster is due to fear of long term lower demand, both local and worldwide, for goods and also the lack of ability to forecast cost down the road.

What the Congressional Budget Office does a very poor job of (forecasting cost) all other companies large and small must do a great job at.

As of right now due to changing regulation and new laws they are having a hard time forecasting demand and cost and until they can feel safer doing these things people will not be hired.

The reason government does not understand this is because they do not run like a business and they do not care about budgets and bottom lines.

Its likely trying to get an Eskimo to pack for an African Safary, they simply have no idea how to look at it.

As someone who does financial forecasting and budgets, this statement is dumb. Anyone who does forecasts, whether it's for a company or for the government, will tell you that forecasts are very rarely accurate and if it is, it's entirely by accident.

 

[Phokus]

My uncle runs a restaurant. Here's how he explains it. Taxes determine whether or not he takes an extra vacation to the bahamas, it doesn't determine whether he hires an employee or lays one off. The ONLY metric he uses to determine hiring/firing is if there is increased/decreased demand for his product. The government could cut his taxes to 0% and he wouldn't hire a single new employee unless business picks up. Even if his taxes were 60%, it would be stupid of him not to hire more waiters if his customer size doubles.

Anyone who still believes in supply side economics: You're horribly retarded.

 

[JS80]

My uncle runs a restaurant. Here's how he explains it. Taxes determine whether or not he takes an extra vacation to the bahamas, it doesn't determine whether he hires an employee or lays one off. The ONLY metric he uses to determine hiring/firing is if there is increased/decreased demand for his product. The government could cut his taxes to 0% and he wouldn't hire a single new employee unless business picks up. Even if his taxes were 60%, it would be stupid of him not to hire more waiters if his customer size doubles.

Anyone who still believes in supply side economics: You're horribly retarded.

Anyone who believes American businesses operate like a redneck restaurant: you're horribly retarded.

 

[Phokus]

Anyone who believes American businesses operate like a redneck restaurant: you're horribly retarded.

We've cut taxes by quite a lot and the jobs haven't come back. You're horribly retarded. The supply side argument as completely failed. Stop living in the 80's. There's a reason why your argument is considered on the fringe of the economics profession (it's complete bullshit). Hiring incentives don't fucking change with small or big business. It's all about how much more or less business you're getting, not how big your tax is.

P.S. guess that argument about small business being the engine of job creation in America flew out the window for conservatives.

 

[Chiropteran]

Economics 101........

Corporations, companies, people, families, and pretty much every entity other than the government cares about the bottom line. They all have budgets for EVERYTHING.

Exactly, but the logic doesn't follow.

If company has potential to fire 1 employee to cut costs to compensate for tax increase, than why wouldn't that company fire that 1 employee without the tax increase, to increase revenue outright?

 

[Ausm]

The flaw in your logic is right there. There are, of course, negative side effects, biggest being lower production. But the cost of lower production is much less that the cost of keeping the employees on and paying their salaries. It a lose-lose, but companies are always trying to mitigate the loss.

One thing you didn't mention is that most companies have trimmed the fat so much that if they fired anymore then management would actually have to work

It is also a fact that the people who are still lucky enough to be employed are actually doing twice the amount of work to cover for the reduction in workforce and most big companies are enjoying huge profits from this so they have no desire to hire anymore workers. Well at least until the worker that they do have drop dead with exhaustion.

 

[xBiffx]

One thing you didn't mention is that most companies have trimmed the fat so much that if they fired anymore then management would actually have to work

It is also a fact that the people who are still lucky enough to be employed are actually doing twice the amount of work to cover for the reduction in workforce and most big companies are enjoying huge profits from this so they have no desire to hire anymore workers. Well at least until the worker that they do have drop dead with exhaustion.

I know exactly what you are saying. I am living it everyday at work.

 

[theeedude]

All those jobs that were created since Bush tax cuts were put in place, well if those tax cuts are repealed, you can kiss them good bye and prepare for Clinton levels of unemployment.

 

[umbrella39]

I know exactly what you are saying. I am living it everyday at work.

Same here, it's getting to the point where our lazy supervisors and managers might actually have to go out of their office and do direct patient care again. Our workloads have doubled but hey we did get a 2% raise last year...

 

[Paul98]

The flaw in your logic is right there. There are, of course, negative side effects, biggest being lower production. But the cost of lower production is much less that the cost of keeping the employees on and paying their salaries. It a lose-lose, but companies are always trying to mitigate the loss.

Why would you lower production? unless you were producing too much and you would make more money lowering production, but that wouldn't change if the tax rate was raised a little bit. The demand isn't going to change. Also why do you have the employee in the first place if they aren't making you money?

 

[JS80]

I just don't get it.

The argument I hear: company will make less money, so we won't afford as many employees. By firing some of those employees we can save money and get back to our pre-price increase revenue.

What I don't get: if the company can fire people and increase revenue with no negative side effects, why isn't the company doing it already without the tax increase? If firing a guy gives you more money at the increased tax rate, at the existing (lower) tax rate firing a guy will get you even more money, since it won't be taxed as much.

Since most people don't run businesses and are generally stupid (as exemplified in this thread), they don't understand that many companies re-invest after tax income in order to maintain and/or grow their business. Let me illustrate with an example. Let's say a company has $10 million in "income" and after tax they are left with $6 million. In order to maintain and grow the business, assume the company has budgeted to spend $5 million in equipment and services, and the remaining $1 million to be passed to the owners as a dividend.

Assume there is a tax increase, where now the after tax cash flow they are left with is $5 million. They still need to spend $5 million in order to keep the ship running and moving, and the owners require the $1 million in maintain their yachts and vacations. What do you think management is going to do in order to find the additional $1 million? It will be a combination of reductions in headcount (lay offs), savings in expenses and reduction in the planned $5 million capital expenditure spend.

Hopefully this helps open up your mind a little bit. Or you can continue your class warfare populist rabble.

 

[Macamus Prime]

Companies cut jobs even when they make money. UBS made $1.9bn in profit last quarter. And, since it wasn't as much as they would have liked to make, they decided to cut 3,500 jobs.

Trickle down does NOT work. It never has and it never will. It was introduced to fool the people into thinking they will see a peice of the pie. It's been 40 years and not a single crumb has reached the middle class.

Those with money have enjoyed keeping it and watching it grow for 4 decades.

 

[randomrogue]

Higher taxes cuts into profits. What this does is slow down the development of a small business. A small business needs as much of it's profits as possible to grow. With the banking crisis it's even worse right now since banks are not extending lines of credit and haven't been doing so for a couple years.

In an effort to keep the cash flow going a company will do a number of things to cut expenses. The number one thing though is to look at payroll since it is generally (if not always) the biggest expense. So when the economy took a dump what did we do? We fired most of our employees, cut hours, cut salaries, and prayed it didn't get worse. Those of us who remained did the job of 2+ people for less money. Today we do the job of 2+ people for the same money we did before. We have not hired a single person since 2008 I believe.

Nobody runs a business to not make money. If you invest your money into a business you expect a rate of return that is worth it.

The problem now is that if you raise taxes it will probably shut down a decent amount of small businesses who simply don't have room for any more cost savings. I'm not going to be responsible for a small business and all the hassles it entails for $50,000 a year. No. I'm gonna make 6+ figures or I'm gonna close the doors and invest my money elsewhere.

 

[randomrogue]

Since most people don't run businesses and are generally stupid (as exemplified in this thread), they don't understand that many companies re-invest after tax income in order to maintain and/or grow their business. Let me illustrate with an example. Let's say a company has $10 million in "income" and after tax they are left with $6 million. In order to maintain and grow the business, assume the company has budgeted to spend $5 million in equipment and services, and the remaining $1 million to be passed to the owners as a dividend.

Assume there is a tax increase, where now the after tax cash flow they are left with is $5 million. They still need to spend $5 million in order to keep the ship running and moving, and the owners require the $1 million in maintain their yachts and vacations. What do you think management is going to do in order to find the additional $1 million? It will be a combination of reductions in headcount (lay offs), savings in expenses and reduction in the planned $5 million capital expenditure spend.

Hopefully this helps open up your mind a little bit. Or you can continue your class warfare populist rabble.

This guy gets it.

 

[xBiffx]

Why would you lower production? unless you were producing too much and you would make more money lowering production, but that wouldn't change if the tax rate was raised a little bit. The demand isn't going to change. Also why do you have the employee in the first place if they aren't making you money?

Again, you wouldn't want to do either but companies are forced with a choice. If they can lower production by still keeping their profit margin they will. Labor is the higher cost to companies/employers. So if they can figure out how to do it with less labor they will, even if it means producing a little less. It not a 1/1 ratio. Believe me, companies figure out a way to get blood out of a turnip, or at least they try to.

 

[xBiffx]

Companies cut jobs even when they make money. UBS made $1.9bn in profit last quarter. And, since it wasn't as much as they would have liked to make, they decided to cut 3,500 jobs.

Trickle down does NOT work. It never has and it never will. It was introduced to fool the people into thinking they will see a peice of the pie. It's been 40 years and not a single crumb has reached the middle class.

Those with money have enjoyed keeping it and watching it grow for 4 decades.

Yep, you're right. The middle class, everyone of them, has been unemployed for the last 40 years. They haven't been able to purchase a damn thing because they don't get an income. IDIOT!

 

[Throckmorton]

Higher taxes cuts into profits. What this does is slow down the development of a small business. A small business needs as much of it's profits as possible to grow. With the banking crisis it's even worse right now since banks are not extending lines of credit and haven't been doing so for a couple years.

In an effort to keep the cash flow going a company will do a number of things to cut expenses. The number one thing though is to look at payroll since it is generally (if not always) the biggest expense. So when the economy took a dump what did we do? We fired most of our employees, cut hours, cut salaries, and prayed it didn't get worse. Those of us who remained did the job of 2+ people for less money. Today we do the job of 2+ people for the same money we did before. We have not hired a single person since 2008 I believe.

Nobody runs a business to not make money. If you invest your money into a business you expect a rate of return that is worth it.

The problem now is that if you raise taxes it will probably shut down a decent amount of small businesses who simply don't have room for any more cost savings. I'm not going to be responsible for a small business and all the hassles it entails for $50,000 a year. No. I'm gonna make 6+ figures or I'm gonna close the doors and invest my money elsewhere.

If the money is invested in the business, how is it profit?

Increase tax -> business is more likely to reinvest revenue since they gain less when it's taxed as profit?

 

[Mean MrMustard]

My uncle runs a restaurant. Here's how he explains it. Taxes determine whether or not he takes an extra vacation to the bahamas, it doesn't determine whether he hires an employee or lays one off. The ONLY metric he uses to determine hiring/firing is if there is increased/decreased demand for his product. The government could cut his taxes to 0% and he wouldn't hire a single new employee unless business picks up. Even if his taxes were 60%, it would be stupid of him not to hire more waiters if his customer size doubles.

Anyone who still believes in supply side economics: You're horribly retarded.

Raising taxes on businesses causes prices to increase to cover the increase. Increasing the price decreases demand...

 

[Phokus]

This guy gets it.

LOL no he doesn't, some of that money comes back to the company. Just because the government taxes the money doesn't mean the money goes out of circulation out of the economy (in fact, the direct opposite happens, see GDP multiplier). Add to the fact that most companies hire based on DEMAND. If someone wants your product and you don't have enough workers to meet that demand, you hire more people.

You idiots need to learn econ and stop with this armchair quarterbacking.

edit:

Raising taxes on businesses causes prices to increase to cover the increase. Increasing the price decreases demand...

No it doesn't, assuming you have competition you can't arbitrarily raise prices. Also, you're taxed on profits, not revenue. My business unit measures it's performance based on EBIT (Earnings BEFORE interest and taxes).

 

[randomrogue]

Companies cut jobs even when they make money. UBS made $1.9bn in profit last quarter. And, since it wasn't as much as they would have liked to make, they decided to cut 3,500 jobs.

Trickle down does NOT work. It never has and it never will. It was introduced to fool the people into thinking they will see a peice of the pie. It's been 40 years and not a single crumb has reached the middle class.

Those with money have enjoyed keeping it and watching it grow for 4 decades.

You don't get it. So how about you look at the UBS job losses from another point of view. What if UBS made more money before but was now making less due to the Eurozone and other global economic problems? Would it not be appropriate for them to cut costs to get their profits back to where they were before? Businesses are run to make money. In turn people get jobs. First comes profits. Then come jobs. The middle class is getting jobs. If you raise taxes though then that business that has 12 employees but is down to bare bone expenses will simply close it's doors and now you have 12 UN-employed people.

 

[Patranus]

If I have to pay higher taxes I will just hire more people in India to mitigate the tax increase. It has nothing to do with firing an employee and not replacing that employee. That employee is replaced with Indian labor.