It has one hundred employees. They each make about the median income, around $35,000. That make the payroll $3,500,000 a year.
All it's other expenses come to $5,000,000. This includes all the materials to make whatever it sells, rent, maintenance, utilities, shipping, legal, accounting, etc., etc., and so forth.
That leaves a profit of $1,500,000 a year.
Let's look at a very high tax situation.
Imagine that taxes on everything over a million dollars a years is 90%. (The rate from WWII until 1964)
So, on the final half million of my profits, I have to give the government $450,000, leaving just $50,000.
If I add ten employees at $35,000 each, that costs me $350,000. Those are costs, deducted from revenues, decreasing profits.
Do I want to do that?
I would only have kept $35,000 of that $350,000 anyway.
You bet I want to do it. I get to add ten employees at a cost - to me - of just $35,000. Or $3,500 per employee.
I get more production, more territories, more sales. My business grows.
Indeed, the whole community benefits.
Let's look at a much lower tax situation.
Say 30% (just 1% lower than what we have now.)
We'll assume the same business, same employees, same costs and profits.
Let's say I'm approached by a factory in China. For simplicity's sake, let's say that even with shipping and other ancillary costs, I can cut fifty jobs and walk away with half their salaries as profits.
Fifty employees cost me $1,750,000. Half of that is $875,000.
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