I always have to roll my eyes when I see politicians (largely from one party) say that unemployment is high because of “uncertainty” about the regulatory environment, or more specifically because of Obamacare. I currently work as VP of finance for a medium sized company, and have worked in a few other companies large and small over the years.

I’ve sat in on many discussions regarding hiring decisions, and never once have I heard anyone bring up the regulatory environment as a reason for holding off. It’s always about business needs, which for most businesses in America is driven by consumer demand. The economy is in the toilet because we’re recovering from a decades-long debt binge in the private sector, and a whole lot of consumers are repairing the household balance sheets, which will take time. There’s not a whole lot from a policy perspective that can be done to speed this up (some things could be done, but not in the current environment), and Obama’s going to rightly or wrongly take a whole lot of blame for having been elected into this environment. Not saying that he’s blameless, because there’s a lot of what he’s done that I don’t agree with, but a lot of this was already baked in a few years ago.

queuno said:

Would Mark Cuban be correct in his thinking that taxes don’t factor into decisions of these sorts?

To add to this, I’ve also never heard anyone say “we’d love to hire another person, but the marginal tax rate/corporate tax rate is just too high!”

I do know companies that have left states where they consider taxes to be high. I have dozens of customers that have left California for Texas in the last 15 years over taxes, regulations and cost issues. Usually you grow expand etc and deal with the tax implications later. I met a couple of weeks ago with a company that did this recently. They even brought their employees with them!!

Government regulations play a huge role in hiring. Most small companies will not hire past 50 employees anymore due to recent regulatory changes.

The problem with Cuban’s view is that taxes determine your profits. Yes if you have enough demand then even with higher taxes you’ll make enough to hire more employees. Where the problem occurs is when you want to hire more people but you really don’t have the additional profit to justify it. So what you do instead is attempt to divide the load that would have gone to an other person over others.

So what BBell says is true as far as it goes but it is more complex. (This is exactly the situation I’m in)

Where conservatives have a point is that when you hire someone you have to figure out exactly how much they will cost. If taxes or related costs are too much in flux that calculation can be very difficult to make. (i.e. how much additional per employee will forced health care cost – and that’ll come out of your profits unless you can convince people to take a pay cut) When it’s uncertain – say with one scheme you can afford an other employee while with an other you can’t then you simply don’t hire. This is especially the case when demand varies and you’re trying to forecast future demand and thus profits.

and yet, Clark, states with higher tax rates also have more small businesses per capita. Massachusetts, New York, California…these have better small business rates than states like Texas. Millions and millions of small businesses in New York and California. How could these possibly operate with such high tax rates? Furthermore, countries that have higher tax rates, like western European states, also have a huge number of small businesses. How could they possibly exist with high tax rates? It BLOWS the mind…

…or not.

I, too, try to patronize small businesses. I’ll pay a bit more, but for now at least, I can afford to.

I recently had the enviable situation of having two businesses want to hire me. I was well trained for the positions and others might need more training, but still, there are jobs out there.

Aren’t taxes lower for self employed? When Bill was self employed for a year, I overpaid our taxes by something like $5000 because I was afraid of the government and we went to Alaska on the refund.

Any real investment involves dedicating real capital to business expansion – whether for construction, equipment, office space, research and development, marketing or whatever. Those expenses often have an uncertain cost recovery period even in a healthy economy.

When a serious investor is looking at making such an investment relative to others the expected after-tax return on investment is one of the major determining factors, along with the risk involved.

If you double business taxation, the possible return on investment is dramatically affected, and that places a major damper on investing in relatively uncertain expansion projects. A major increase in employment expenses has a similar effect.

The employees in this case aren’t hired because they will earn a dime for the company in the short run, but rather so that they will help increase the return on investment in the long run. In the short run, many labor costs are an extremely heavy expense that have no return at all.

So what happens if the government passes a major law that increases employment costs is that many existing and future expansion projects that were worth doing become net losing propositions, because the cost of labor is too high to make them profitable. That is an impact far worse than increasing taxes on profits – it makes it far more likely that many new ventures and expansion projects will lose money, i.e. provide a negative ROI.

No one invests money in order to lose it, but if the laws and regulations are set in advance at least investors can do a reasonable job avoiding projects that are net losers because labor costs are too high.

But if the regulations are a work in progress, such that future employment costs are highly uncertain, such projects will not be engaged in at all, because investors will have no idea whether some government regulation is going to change a reasonable business plan into a sure failure.