Ever since "Joe the Plumber" everyone keeps making comments like this, and I don't understand the reasoning. Could you expand on the logic in this?
My issues:
1.) You work for a small business about to cross the $250k income threshold. If taxed more above that threshold your pay would be cut... Why? It is only the portion above $250k that would be taxed at the higher rate (that's how tax brackets work); while this would shrink the margin on new profits, it would not affect the gross income for the firm from which salaries are paid.
2.) Income Tax for businesses is on the NET not the GROSS - and salaries fall squarely in the "cost" side of doing business. Thus if you get a pay increase of $5k, the reportable income of the business just fell by $5k. i.e. - If my business makes $251k and I decide to hire a new employee at a cost of (salary + benefits) $50k, my business now only has a reportable income of $201k. The only way this wouldn't work (for a small business who files on the owner's tax return) is if the owner raised his own salary, or hired his wife. How is a tax on income over the $250k line a deterrent to hiring? I would think that it encourages further investment in the company either through expansion, raises, or new hires, as such actions would keep the "effective tax rate" for the company lower.
What am I missing?
