An economical idea on tax cuts for businesses. Constructive ideas/criticism wanted!

I do not think this is something that has already been mentioned, as I have not read it anywhere else. I was pondering what exactly could be done to benefit the most people when it comes giving businesses tax cuts. Some argue that reducing taxes would help the economy, the counterargument being that the money would be pocketed. Some argue that taxing the businesses more is better, the counterargument being that businessman would replace the lost money through cutting hours/jobs, etc.

My approach would be to give tax cuts/incentives to businesses for doing things that DO directly stimulate the economy.

My first example being that a lot of people are right around the poverty level, and that minimum wage earners often struggle. I believe businesses that do pay minimum wage ( some retail stores, fast food restaurants, etc ) could be given tax breaks to increase the wages of people making near minimum wage. You could even give a slight bonus tax break to companies for participating in the program, making it something companies would be eager to participate in. A forced federal minimum wage is not something to be happy about. Being allowed to allocate more money towards your business/employees at the same time as getting a possible bonus tax cut, I think sounds much more appealing, and would help the people that often need it the most.

My second example is the one that would need more fleshing out, more details or ideas added to. There are bound to be businesses that do not pay their employees minimum wage. I mean this would be obvious for something like a law firm, medical practices, and the like. I believe such businesses could be given tax cuts/bonus tax cuts based on creating lower-end jobs, especially to employ people that do not have jobs. Programs could be created with this money that create jobs for formally unemployed people, while the bigger businesses get tax cuts, and even a little bonus money in their own pockets for doing such a thing.

I realize my ideas are far from perfected, but I wanted to take an approach that would not hurt the businessman, while encouraging job creation/pay raises in lower jobs. Let me know you ideas/criticism against mine. I would like to hear from anyone who has an opinion on this idea.

reply to post by deadlyhope

I'm sorry that you're not getting more responses. I hope everyone is still not absorbed by Martin v. Zimmerman. I've got a few questions for you, I hope you see them as constructive.

My approach would be to give tax cuts/incentives to businesses for doing things that DO directly stimulate the economy.

Doesn't that require the government to know what stimulates the economy, and that they want to do it? I haven't seen much evidence of that over the last several years. But for the sake of discussion, let's say they adopt your ideas.

My first example being that a lot of people are right around the poverty level, and that minimum wage earners often struggle. I believe businesses that do pay minimum wage ( some retail stores, fast food restaurants, etc ) could be given tax breaks to increase the wages of people making near minimum wage.

Fine, let's say it cost the business $100,000 to raise the pay of their minimum wage workers. Where does that money come from? Will the government give them $100,000 in tax breaks? If the company gets less than that they have to cover it out of their pocket, so they raise prices, fire some workers, or both.

Now the government isn't going to give this new program funding from the money they already have, it would mean cuts, and the government doesn't do cuts very well. That means they have to raise taxes to give money to minimum wage workers. Is that the solution you were hoping for?

You could even give a slight bonus tax break to companies for participating in the program, making it something companies would be eager to participate in.

To make companies eager to do it, they would have to make more money from the program than they would without it. That bonus means even higher taxes.

Remember also the other effects. The pension contribution from employers would go up. The next lowest paid workers would demand a raise as well, and how much of the new raise would be taken back by income and payroll taxes?

There are bound to be businesses that do not pay their employees minimum wage. I mean this would be obvious for something like a law firm, medical practices, and the like. I believe such businesses could be given tax cuts/bonus tax cuts based on creating lower-end jobs, especially to employ people that do not have jobs. Programs could be created with this money that create jobs for formally unemployed people, while the bigger businesses get tax cuts, and even a little bonus money in their own pockets for doing such a thing.

Same problems as above, plus if those firms needed minimum wage employees, they would have hired them already.

This program sounds like the government announcing, "If you hire people you really don't need, they can sit around and we'll pay their salaries."

I'm probably not understanding your ideas properly, so these are just my first thoughts. I'd be happy to talk more if you'd like.

My general opinion is that businesses will hire people when those people can bring in more profit than they cost. Assume that business taxes are really, really high. Then hiring a new person will probably not bring in much profit, because the profit will go to the government in taxes.

Might I suggest setting things up so it's easy for the business to make a profit from each new employee? Then they'll hire left and right.

reply to post by charles1952


Okay let me try to explain using simple numbers. To make numbers easy, let's say federal tax for any business that pays minimum wage is 30% and their labor pay is around 20%. Basically what I am suggesting is that their federal tax could be 25%, and their labor could 25%, as well. That's a 25% increase in money that could be allocated towards paying workers.

I realize the government isn't too keen on giving tax breaks, and I know that they currently aren't doing what's best for the economy on many levels, but wouldn't this help the economy? Giving people more money to spend, giving the working class more money that is taxed itself.

You did mention that the raises in pay would be taxed, and that's part of the general idea. The average person would be earning more money, the average person would be paying more taxes, but earning a decent amount more, thus spending more money, which we know that spending = taxes.

The general idea is that companies are not hurt, and encouraged to give the lowest earners raises, and that because of those raises the government will in turn see a lot of what they gave as a tax break through the spending that those people do, plus the taxing of those people ( which is already done, the people would just be making more, now )

Another point to be made is that a lot of people that do make minimum wage are given things like food stamps. With a pay raise, it might be possible to take these people off of those food stamps.

Overall I just think that the businesses would be happy for these tax cuts, being able to allocate the money to employees, the people will be happy because they are earning more money and aren't struggling as bad, and the fed can cut back on things like food stamps, and will end up seeing a good portion of this money regardless.

Who loses?

Edit - The math done. Only using easy numbers, maybe not real ones. Let's put the wage of 10 workers at 10 dollars an hour, 40 hours a week. $4000 dollars a week right now going to workers, let's put the workers federal tax at 20%, so $800 of that to taxes, based on labor being 20%, the business makes $20,000 a week, and we've said that 30% of that goes to federal taxes, so as of now $6,000 from the business earnings and 800 from employees making a total of $6,800 dollars towards federal taxes a week from this employer, and it's employees.

Let's change up the numbers like I've said.. The workers now get a total of 25% of the money, thus 5,000 dollars a week are going to these 10 workers, they now get paid 12.50 an hour, and 20% of that 5,000 dollars is now 1,000 dollars going toward federal taxes from the workers, and 5,000 from business so $6,000 is now going to federal tax instead of $6,800

Based on this example, you might at first call this an 11.8% loss on federal taxes, but if we can assume 3 of these people qualify for food stamps, and get say 300 a month, that's 900 dollars, which actually gives the fed a surplus of $100.

These people losing their food stamps would not be hurting, though, as they are getting 400 dollars more a month in wages - or rather very close to that 300 after taxes and such.

I realize I assume things, but the general idea/hope is that the government wouldn't end up hurting too bad, either, so this could be something they would look more into.

reply to post by deadlyhope

Dear deadlyhope,

My signature does say "I'm not the sharpest bulb in the drawer," so I appreciate your patience. Let me start with just the first part, then we can work our way through the rest.

To make numbers easy, let's say federal tax for any business that pays minimum wage is 30% and their labor pay is around 20%. Basically what I am suggesting is that their federal tax could be 25%, and their labor could 25%, as well. That's a 25% increase in money that could be allocated towards paying workers.

Would all this be mandatory or optional? What happens if a business shows a loss? Can they cut salaries?

It seems as though the best choice would be to have businesses figure their taxes at 25% and 30%. The difference could be either sent in as taxes or distributed to minimum wage workers. Of course that's a huge help to companies that don't have minimum wage workers, they don't have to raise salaries. So if minimum wage is $8 and the company is paying $8.50, they get the tax cut but don't have minimum wage workers to give it to. Or are you saying the money would go to the lowest paid workers regardless of how much they're making?

And I suppose they'd have to wait until the end of the year to see what their taxes amounted to, then give the workers a big Christmas bonus. Aren't there also some companies that don't owe taxes at the end of the year? What good is a tax break to them?

If there is a mandatory minimum wage increase, what happens if the tax break isn't enough to cover it? As I said, a company that has little or no profit one year still has to pay the increased wage. The amount the company gets can vary, but the increased labor cost is fixed. I suppose that in a year with a loss caused by increased wages, they'd have to fire workers.

You see, I just don't have a firm grip on your proposal yet. Sorry.

With respect,
Charles1952

P.s. Sorry, I didn't see your edit. So the plan raises the rate of the lowest paid worker, not just the minimum wage worker. Businesses don't pay taxes on the money they pay in wages. So if, the company takes in $24,000 dollars a week and gives $4000 to the employees. I'll accept your tax rates meaning the employees cough up $800, leaving them with an after tax $320 a week each. The company pays $6,000 a week in taxes.

After the switch in rates, the employees get $12.50 an hour each or $500 a week. after tax of 20% they now have $400 a week after tax. But the employer paid $5000 out of the $24,000 they make each week. That leaves $19,000 taxable and, at the new rate of 25%, their taxes would be $4750 instead of $6,000. The employees, as you noted, would kick in an extra $200 between all of them, as their total income only went up $1,000.

So under the new system, the employer and employees, turn in $4,950 instead of the original $6,800.

A loss of $1850 to the government (Which I heartily approve of, if they don't come up with some new tax to cover it.)

This raise of $80 a week, might kick someone off food stamps, but since their food stamp benefits are $75 a week (You said $300 a month) they're no better off. (that is if the government stops calculating the benefit cut off by the poverty level.) - C -

reply to post by charles1952


It's not a mandatory minimum wage increase, it's an incentive to increase wages that put people near the poverty level.

I realize that taxes and labor are much more variable than this, but I am saying if taxes were always 30% for this business, and labor was always 20%, 5% of those taxes could be allocated towards the workers. I'm not doing the math as if the company now makes less money that is to be taxed, I'm saying this is actual tax money that can be chosen to be allocated towards the pay of people earning a lower amount of money in general. ( There would have to be restrictions, possibly. It's an incentive to boost the poverty class, not just a way for every single person working to earn more money because businesses would obviously choose a tax cut to benefit employees, right? )

Also, while I thank you for pointing out weaker points of my idea, another thing I hoped for was strengthening of it, I would like your input on something similar that might work better, or the like. The idea is to come up with an idea where businesses are not effected negatively, the government is effected in a way they deem as okay, and where the workers are effected in quite a good way.

Maybe it's impossible, and maybe my original idea is simply wrong as it is, but Edison didn't make a working light-bulb his first try. So I'm calling upon ATS to help me refine my own light-bulb,

Cheers-

Deadlyhope.

reply to post by deadlyhope

Dear deadlyhope,

I really am sorry, you were asking for help and I didn't offer much in the way of new ideas.

Ok, is the problem we're trying to solve lots of people being unemployed, or the low wages of those who are employed? We can always get the government to force businesses to do something, but if it's not economically reasonable, the businesses just close. I don't normally trust government to make the right calls, so I'm going to leave them a little to the side for now.

Please check my assumption, but I think an employer does anything if he thinks it will boost his profit. Advertising, public relations, opening new stores, cutting back on workers, etc. There are a few with some other goals, but I don't think they're a model for society. And, they still have to make some profit, or they fold.

So how do we make hiring new people profitable for a busines? The worker they're considering hiring has to add more profit than he costs. Profits, roughly, is sales minus costs. We've got a pretty good handle on how to measure sales, businessmen are fretting about it all the time. But what about costs?

Costs aren't just salary or wages. How much training does a new worker need? Can he communicate well, do math, be relied on? What about the cost of time for the additional forms and regulations required for each worker? Does the company offer health insurance? Paid vacation? An employer contribution to a 401 K? Does the company have to up it's liability insurance?

My honest opinion is that reducing at least some of these costs will make new hires more profitable to the company, thus people will be more likely to be hired.

Depending on the size of the company and the labor market, companies don't like finding good workers, training them, then losing them to another company. Profit comes in here as well. How much do we save by hiring a new person at a lower wage? How much will the new person cost us by being a lower quality employee? A smart business figures these costs, and lets the arithmetic tell them what to do. A dumb business eventually folds.

I know I didn't offer a solution, but I hope you can see where I'm headed. I'm not sure I can post again tonight, but I'll be back tomorrow.

With respect,
Charles1952

Charles1952 said "The pension contribution from employers would go up."
--What pension? This class of workers receive no retirement benefits, generally. Pension? That's a truly lovely thought...
"The next lowest paid workers would demand a raise as well"
--People under the power structure don't demand anything, haven't for a long time (last time was working women in the 80s? Civil Rights in the 60s?). Demanding raises is not likely, in low paying jobs.
I appreciatecthe O.P. for thinking about such a complex issue & trying to brainstorm. I dont have any ideas for small business taxes/ economic stimulation.

reply to post by kkrattiger

Dear kkrattiger,

Thank you very much for offering two good points. In fact, one was quite good.

--What pension? This class of workers receive no retirement benefits, generally. Pension? That's a truly lovely thought...

I agree with you that my point about pensions could be seen as misleading, and I'm sorry for being so sloppy. The individual who operates the french fry mechanism at a McDonald's is not usually offered stock options and golden parachutes. You are quite correct, and I was sloppy for creating that impression.

But in my own defense, I would point out that employers would have to contribute more, as part of the payroll tax, to fund the Social Security system under which our maestro of cullinary delights would retire. As I'm sure you remember, employers kick in a per centage of the employee's wages, and as the wages go up, the contribution to the Social Security fund goes up.

--People under the power structure don't demand anything, haven't for a long time (last time was working women in the 80s? Civil Rights in the 60s?). Demanding raises is not likely, in low paying jobs.

Ah, there I must fault you, if ever so slightly, for a lack of scope in your interpretation of the word "demand." Cast your mind back to our Fearless Fuhrer of the French Fry, who is being compensated a meager $10 per hour of his valuable time.

With a generosity falling squarely in the great traditions of noblesse oblige we grant him a munificent $12.50 per hour. We bask in his gratitude, but fail to plan ahead. The dark day looms when the management of that fine dining establishment finds it needs an assistant manager. The current employees are offered the position, and the following dialogue ensues:

FFFF: "I can always use a promotion, how much do I get from this new position?"
Management: "$12.50 an hour."
FFFF: "No, I mean how much does the Assistant Manager get paid?"
Management: "$12.50 an hour. Just like it always has."
FFFF: "Blow this for a lark! More paperwork and no raise in pay? A poor joke."

Management has little choice but to offer something extra for the position of Assistant Manager, and whatever it is will cost the company money. Thus is the raise demanded and received.

With respect,
Charles1952

#1 overiding cost in any succesfull business is wages paid. Thats why rich people must start and support any successfull Venture. Thats right START.
#2 in order to be a business u must offer a service or product too a number of cust. who trust and rely on your product or service.
#3. now Incorporate

thank u,,that will be $ 150,,


thats right not one mention of tax's,,if u do well,and become successfull after ,paying ur share,,,(not the entire burden,),,just a fair tax, too build,,services,,heat/water/lights/sanitation/pleasant enviroment/policing/,,,wow it adds up,,,then u can make it anywhere,,at which point u relocate your head offfices to,, Switzerland,,,ohh sorry thinking too far ahead.