BREAKING: Employment expenses are Deductible
This must be astonishing breaking news because it sure doesn't come up much in an American political discussion.
A business pays taxes on profit. A business does not pay taxes on business expenses.
Hiring people is a business expense.
The higher the tax rate on profits the more a business person is incentivized to invest profits in the business, versus taking profits out of the business (and having to pay taxes on that profit).
When you tax something more you get less of it.
Businesses shift money from profits into business expansion, or visa versa. Profits are taxed. Hiring people is not taxed. In practice, high taxes on profits incentivize investment in business.
I assume everyone who files a schedule C has recognized that a 25% tax rate is equivalent to a 25% discount on office equipment. You end up paying 25% less in total. Employees are business expenses, as surely as office equipment is.
I do not want to go all "Laffer" here and claim that a high tax rate cannot possibly reduce employment, or that high taxes always magically create employment. I can create a hypothetical where a higher tax rate could lead to a firing, but it is as least as likely to result in a hire.
I would guess that taken altogether there is very little net effect. Cutting taxes doesn't create new jobs. Raising taxes doesn't prevent new hiring.
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