“Don’t let anybody tell you that… it’s corporations and businesses that create jobs.” That is what Hillary Clinton said at a campaign rally. She later tried to clarify her remarks by saying the following.
“Our economy grows when businesses and entrepreneurs create good-paying jobs here in America and workers and families are empowered to build from the bottom up and the middle out — not when we hand out tax breaks for corporations that outsource jobs or stash their profits overseas.”
Are we to believe this? Newsflash! Corporations don’t pay taxes, consumers do! Here is the question. If you own a business and sell a product or service do you pay the taxes out of your pocket or out of your profits? The answer is your profits. Businesses small and large pay everything from building rent to payroll, from insurance to taxes out of what they make from the sale of their goods or services. The more labor, rent, insurance, taxes, or any myriad other expenses cost, the higher the price of the goods or services. Once someone understands this concept other things come into focus.
If Hillary believes that our economy grows when businesses create good-paying jobs but then complains about corporate tax breaks then she believes in an oxymoron. The United States has one of the highest corporate tax rates in the world. This is why those corporations that can do so move. The US also taxes money made overseas when it is brought back to the US so it is an incentive to leave profits offshore. It does not take an economist to understand that corporate taxes raise the cost of doing business. Another unintended consequence of corporate taxes are the slowness of job creation and the depression of wages. Yes, corporate taxes stifle wages by cutting into the profit margin of a business .
For those who don’t know, here is how the price of an item or service is set in most businesses.
Materiel Cost: This is the price the business pays for inventory, storefront (all expenses associated with the building including electricity) that is factored into the final price of an item.
Personnel Cost: This is the rate at which labor (the number of employees required and the level of pay for each) is factored in will affect the final price of the item.
Regulatory Cost: This rate includes all local, state, and federal taxes, fees, and compliance costs. The cost of every fee and tax is factored into the final price of the item.
This is the simple version of business cost and as you can see there is more than just the price of the item itself. The only area where the business actually has the most control is personnel cost. This is controlled in three ways.
Reduction of Workforce: When faced with increases in the other factors, a business may decide to lay off or fire employees. This usually means those who are the newest will be let go first but sometimes it is the higher paid employees who get canned. Businesses may also
Lower Wages: This actually can happen after a business has had layoffs. When it becomes necessary to hire new people they will usually start at a lower wage then those before them.
Reduction of Hours: The business might decide to continue with the current workforce and just cut the hours worked by employees. Many employees would then become part-time workers.
If Hillary wants to grow the economy she would fare better if she advocated that government get out of the way by eliminating the corporate tax altogether. Businesses would flock to the US if the corporate tax rate were zero. Booming business as we have seen in North Dakota (where McDonald’s is offering $12.00 per hour) raises wages and creates opportunity so much so there is actually a labor shortage. “Trickle down” economics can work when allowed to thrive but it was halted by both George HW Bush and Bill Clinton through tax and regulation. So there you have it.