How Income Tax Increases Stifle Job Growth

Donald Luskin:

Little companies like mine don’t pay corporate taxes like big companies. They are organized as sole proprietorships, S-corporations, or limited liability corporations (like TrendMacro), so the profits are passed on to the people who own them (me, in the case of TrendMacro), who in turn pay taxes on them as personal income. . . .

Now, suppose I want to hire a new employee at TrendMacro. I’d only do it if I thought I could make enough money on it to justify the trouble of recruiting, training, supervising — and taking the risk that it might not work out. So, just for example, let’s say I’d have to think I could make an extra $65,000 a year with my new employee.

At the current tax rate of 35%, my new employee would have to generate profits of $100,000 to leave me with $65,000. If that rate climbed to 39.6%, I would keep only $60,400. So to hit my $65,000 target for hiring, I would have to expect my new employee to generate profits of $107,616.

So what do you know? Raise my taxes, and all of a sudden it’s not as easy for me to hire someone. The guy or gal who could make me only $100,000 wouldn’t get the job. And unless I met someone who could make me $107,616, no one would get the job.


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