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OpEdNews Op Eds    H2'ed 12/5/10

Weird Tax Myths

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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.

After taxes (30%), I keep $612,000. That's worth doing.

I'm a bit tired of Chinese villains.
Let's say that by increasing hours, decreasing benefits, firing older workers, hiring new workers at a lower pay scale and a variety of other maneuvers, I can decrease my costs by the equivalent of ten employees.
That's $350,000.
At a 90% tax rate I only keep $35,000. Not chump change. But balanced against continuity, happiness, and efficiency in my company and the likelihood that it will grow my business, I'm likely to keep my people.

At a 30% tax rate I keep $245,000. I'll jump on it.

In any debate on taxes and their effect on business, keep in mind that taxes are only paid on profits.

Costs are counted against profits.

High taxes are, therefore, an inducement to invest (create deductible costs). Labor is a cost. High taxes are, therefore, an inducement to hire people. Not, of course, at random, but people who will grow the business and increase its value.

Low taxes are an inducement to reduce costs at whatever costs and take profits.

We currently have low taxes.

If the theoretical model above is correct, the result should be high unemployment and high corporate profits. Moreover, profits that are retained. That are not reinvested. Except to purchase other companies.

Which is exactly what we have.

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LARRY BEINHART is the author of SALVATION BOULEVARD,  a major motion picture with Pierce Brosnan, Greg Kinnear, Jennifer Connelly, Marissa Tomei, Ed Harris, and Jim Gaffigan, WAG THE DOG, The LibrarianFog Facts: Searching for Truth in the Land of Spin  and HOW TO WRITE A (more...)
 

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