-You own a company and the tax rate goes up on taxable income over $250K.
-Your projected taxable income in 2012 is $300K.
-IF you had sufficient demand that you would really like to expand your capacity by hiring additional personnel and/or getting new equipment, etc. (all deductible expenses, subject to certain amortization rules on equipment), you could bring your taxable income under the $250K threshold, avoiding the higher rate on that income. I believe this is the stimulative effect (or effective subsidy) SK and Brian are referring to, as the tax saved on that $50K is essentially a subsidy for growing one’s business.
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edit: It’s like when we hear peole claim that they will stop working so many hours, etc. in order to bring their taxable income under the $250K threshold; but instead of shrinking their business/gross income, they grow it.[/quote]
In a growing environment where demand is increasing, I agree with you that people will absorb the higher taxes because their net is increasing. However, in a flat to declining economy, I’m not so sure they would absorb the higher taxes. My guess is, they probably would reduce their cost (lower employee’s wage or lay them off). Employers will be the last one to eat the cost. I know a few mom and pop shop owners and they’ve been telling me business suck right now. So, increasing advertisement, etc. won’t help, since their clienteles don’t have the money to spend.
WRT your edit portion, again, same argument apply. There was an article on CNN awhile back that said more women are starting to decide to stay at home. Due to the fact that after taxes, daycare expense, etc. it’s not worth it for them to go to work. So, they stop working.
As I’ve stated before, if you slowly increase people’s taxes, they’ll probably take it and probably wouldn’t change their habit/work (kinda like boiling water with a frog inside). However, in this case, at a certain level, people will start to reevaluate. Everyone have a different tipping point.
It all comes down to how much you value money and how much you value time. Everyone have different value for these two. At some point, people will say, the time I’m wasting at work is not getting me the kind of net pay I want, so I rather spend that time doing something else.
