This paper examines the effect of Obama's new raise of taxes to business on employment. The impact of raising taxes to business is discussed with relation to employment. The outcome of labour market is a significant measure of household well-being during an economic crisis more so to the middle class and low class population where employment is the main source of income. Understanding of whether rising of taxes on businesses affect business is thus essential.
An increase in taxes definitely hurt small and medium enterprises. This is because they will have to pass the cost to the consumers. This will reduce the demand and hence need to cut down on production. Besides, SMEs have no tax minimization strategies and thus many will be in deficit due to lower levels of productivity. Consequently, they will be compelled to close down or lay off workers in order to keep the business grow. This increases unemployment level and reduces the employment level nevertheless. As a result of bankruptcy, many businesses will not manage to operate after the cut and may opt for as well fleeing the country to escape the taxes. This results in the loss of employment opportunities provided by the businesses in the economy hence leaving employees unmotivated (Nell and Campbell, 2010).
With the Obama’s tax hike, middle income households that receive income in the form of dividends is likely to experience direct tax increase. This will in turn decrease the spending in form of investment thereby crumbling the economic recovery. With the existence of worsened job market, characterized by lower wages and lower returns on the savings, households and individuals are faced with poor economic growth which gives birth to unemployment. This reduces the employment level (Nell and Campbell, 2010).
Decrease in investment
In situations where high income taxpayers are forced to pay high taxes, often they avoid the fresh tax load simply by decreasing the level of investment income. This subsequently results in lower job creation. Fewer employment opportunities are created. Also, lower income workers are paid meager salaries that make them opt out of employment (Nell and Campbell, 2010). This reduces employment level simply because of lack of motivation. Also, higher rates on corporation tax as well as other business taxes do not stimulate decrease in fixed capital investment. A decrease in planned investment implies that economies capital stock cannot rise and hence capital stock per worker employed decreases (Romer, 2011).
Minimum wage wages resulting from Obama’s hiked taxes destroy jobs and leads to unemployment. When there is significant decline in the share of wage employment among labour force, unemployment level tends to be higher. This is simply because of the higher tax rates that make businesses observe strict economic measures in order to remain relevant in the industry.
Decline in employee earnings as a result of labour supply effect
Obama’s hike in taxes leads to the slow growth in earnings due the decline in hours and wage growth. Earnings decline systematically since the labour market appear to be less productive. The decline in labour demand as a result of hiked taxes translates negatively into employment wages. This adversely affects the labour market as it results in decline in employees’ earnings (Romer, 2011).
Taxation and labour productivity
Hiking taxes will significantly affect the intensity with which employees work. Basically, their overall efficiency and productivity reduces. This is however debatable as many ancillary factors may influence labour productivity.
Overall, the summative indicators show that hiked taxes results in employee retrenchment which reduces employment, predominantly in the industrial sector thereby increasing unemployment. It signifies that there is an economic harm of raising taxes. Higher taxes results in an economy with lower employment prospects. This results in lower wages and misplaced consumption and savings. This does not motivate workers at all costs.
Nell, G., & Campbell, K. (2010). Obama’s tax hikes on high-income earners will hurt the poor—and everyone else.
Romer, C. D. (2011). The Rock and the Hard Place on the Deficit.