If we listen to the politicians we would think that there is a direct relationship between tax cuts for corporations and those corporations hiring new employees. In fact, some of the politicians put a pretty tight bow on that package. We would be smart to trust our skepticism. Let’s look at the books.
The cost of employee salaries and benefits are found in the expense side of the balance sheet. So, the cost of employee salaries and benefits are subtracted from the revenue as we calculate the profitability of the firm and profitability is a prerequisite for a business having a tax liability. That means that if there is no profit there is no tax liability. It looks like our suspicions were well founded.
When we turn our critical eye more carefully on the business books we conclude that, all other things being equal, a profitable company could hire new employees and reduce their tax liability. Wait a minute! This means that hiring a new employee reduces their tax liability and not hiring a new employee increases their tax liability – Just opposite to what we are being told by the politicians. We were right to trust our skepticism.
Why would the politician tell us that tax cuts lead to job creation when the opposite is true? First, the politician is not required to tell us the truth. Second, the politician is getting campaign donations from corporations and wealthy business interests and they certainly want to be more profitable. We would be wrong to conclude that a quid pro quo relationship exists, but we should trust our skepticism when a politician opens his mouth.
When it comes to job creation, the only business relationship that passes the smile test is the one that says jobs are created when the demand for products and services increases. Right now our big business community is sitting on a lot of cash and if they just hired a few new workers they could go a long way to increasing demand in our economy and creating even more jobs.
The Sausage Grinder is Broken – will you help to fix it?