[bzbarsky]

Yes, but so what?

A simple exercise: say you have a small business. Your tax rate is 35%, gross revenue is 200k, tax-deductible expenses are 100k (1 or _maybe_ two employees). We'll assume a C corporation, just for illustration purposes and that you care about the after-tax profit it generates. In practice for something this small you would probably just pay yourself a salary and be done with it...

Anyway, you have 100k taxable income, and 65k after-tax profit. If you paid your employees more, you would have less after-tax profit, because your tax rate is not 100%.

Now say the tax rate drops to 21% (this is the cut that happened) and you give your employees a 10% raise. Now you have 110k expenses, 90k taxable income, 71.1k after-tax profit.

So a tax cut in this situation does in fact allow an employer to both have more after-tax profit _and_ give raises to employees at the same time.

Now we can have a discussion about what government services the employees and the employer won't get as a result of the tax cut, of course. That needs to be accounted for too, in the grand scheme of things.

[tracker1]

That 21% tax rate relies on paying employees more?

[bzbarsky]

> That 21% tax rate relies on paying employees more?

I'm not sure what you're asking.

The 35 -> 21 change is the actual corporate tax rate change that happened end of last year in the US.

You don't _have_ to pay your employees more to be taxed at the 21% rate. But at the new tax rate you _can_ pay your employees more and till make more of a profit.

So in the end the whole question is where the money that would have been paid in taxes goes instead. It could be going to stock buybacks, dividends, investment in the company, raises for employees, or just sitting in the company bank account. In real life the answer is probably "all of the above" and the proportions vary.

Again, I'm not sure whether I answered your question, because I'm not sure what you're asking.