What is sure, though, is that economic theory exposes the myth as a falsehood. The theory of the firm developed since the time of Alfred Marshall, the great British economist of the early 20th century, is that firms, private as well as public ones, expand until marginal cost equals marginal revenue. It is then and only then that profits (or whatever else the firm's bottom line may be called) are maximized. Firms keep adding factors of production -- labor among them -- until that point is reached.
When firms decide to add labor to the production process, what matters is their expectations for profits before tax, not after tax. Short of a wholly implausible tax rate of 100% on earnings, the tax rate does not even enter into a firm's decision to hire or not hire.
Written by Walter M. Cadette, an economist (JPMorgan, retired) and formerly senior scholar at the Jerome Levy Economics Institute at Bard College.
http://www.thestreet.com/story/1168...obs-is-a-myth-if-not-a-whopper.html?CM_VEN=AD|TWR|JC
When firms decide to add labor to the production process, what matters is their expectations for profits before tax, not after tax. Short of a wholly implausible tax rate of 100% on earnings, the tax rate does not even enter into a firm's decision to hire or not hire.
Written by Walter M. Cadette, an economist (JPMorgan, retired) and formerly senior scholar at the Jerome Levy Economics Institute at Bard College.
http://www.thestreet.com/story/1168...obs-is-a-myth-if-not-a-whopper.html?CM_VEN=AD|TWR|JC
