Here's a response to the meme that tax cuts create jobs.

[muntrv]

Guest Column - Donald Salberg
Opinion: Why corporate tax reduction will not increase jobs

Let us say that you are the CEO of a company that sells widgets. You have been in the business for 10 years and have established firm purchase commitments from 10 retailers who each purchase 1,000 widgets a year for a total of 10,000 widgets a year. These widgets wear out and are required for important manufacturing of other products by each company. Therefore each company renews its order for 1,000 widgets each year but no more and no less.

The widgets sell for $100 each and therefore generate revenue of $1,000,000. You employ the 10 employees in production at $50,000 per year salary and benefits for a total of $500,000 in salaries. You pay yourself $125,000 and a manager/treasurer $75,000 a year. The cost of goods is another $200,000. Therefore, all expenses amount to $900,000, leaving you with a profit before taxes of $100,000.

Suppose you have to pay 35 percent taxes. You will have $65,000 as retained earnings after taxes. The retained earnings can form a rainy day fund or be dispensed to yourself and your employees. Since you are a private company you do not have to pay dividends.

Now, if the 35 percent tax is eliminated, then instead of retaining $65,000 you will keep all of the $100,000 in profits.

Should you use the tax savings to increase employment? Let's examine what will happen if you do. If you hire an 11th employee he will make an additional 1,000 widgets over a year, increasing total capacity from 10,000 to 11,000 per year.


SEE MORE AT LINK BELOW

http://www.annarbor.com/news/opinion/why-corporate-tax-reduction-will-not-increase-jobs/

[Cant trust em]

1. marginal revenue > marginal cost. nt

[louis-t]

2. What I've been telling my right-wing relatives for 15 years.

Demand creates jobs, not tax cuts. It is a foolish man who "EXPANDS his business, CREATES jobs, GROWS the economy" (their words) without the demand. My words were "If you give tax breaks to the wealthy, they will put it in their pockets." That's exactly what they have done.

[JonLP24]

3. K&R

I love DU for the source of valuable information. Explanation makes a lot of sense.