Thousands of Starbucks Employees Are Getting Raises After GOP Tax Cuts | Hacker News Reader

Thousands of Starbucks Employees Are Getting Raises After GOP Tax Cuts

fortune.com

42 pointskimsk11227 comments

I'm probably misunderstanding, but it doesn't seem like the new tax code actually encourages companies to invest in their employees like this, since corporate income tax is applied to profit, not revenue. Since employee pay is tax deductible, there is a higher marginal cost to giving your employees a raise.

Say you're Barstucks Coffee Co and you make $100 / yr in revenue, of which $60 goes to your employees and $40 is profit (assume no other expenses). Under a 35% corporate tax regime, the after-tax profit is $26.

Let's say you give out a pay raise, increasing pay expenditure to $80. That leaves $20 in profit, $13 after tax. So it cost you $13 to put out that raise.

Compare to a 20% [1] tax regime. With $60 / yr to your employees, you get $32 in after tax profit. Increase that to $80 / yr, and you only take home $16 after tax. So it cost you $16 this time around to give your employees a pay boost.

Sure, you're making more overall, but there's more disincentive to give a cut of that profit to your employees.

What gives?

[1] Actual rate from the new plan is 21%.

> What gives

There's a tightening labor market and Starbucks has a long history of compensating employees relatively well with annual raises/benefits/401k/etc. They gave every employee a 5% or better raise in October 2016 and everyone received a raise in January 2015 too.

There's no correlation to tax cuts aside from articles like this and supporters who will point to it as proof of success.

In a strong economy like our current one, upward pressure on wages overpowers downward pressure. When there is a tax cut, that net positive pressure doesn't disappear. So in the lower tax world a business can give in to wage pressure with less cost to itself than in the higher tax world.

Now in the lower tax world there is also the allure of higher profit without any wage increase as compared to the higher tax world, so the issue becomes one of balancing the desire to give in to wage pressures and the desire to increase profits which is a decision that must be made on a company by company basis.

As a reminder, before the inevitable flame war starts, http://lesswrong.com/lw/gz/policy_debates_should_not_appear_...

Policies which are, on net, good can still have some bad effects. Policies which are, on net, bad can still have some good effects. Cherry picking a single microeconomic effect in isolation isn't strong evidence for or against either macroeconomic conclusion.

That said, this is good news for Starbucks's workers, and I hope this does become a trend!

Most economics agree that cutting the corporate tax cut would have a good economic effect.

If you doubt that it does, realize that you are in the academic minority.

Did you mean to say: ". . . agree that cutting the corporate tax cut would have a NET good economic effect"?

First, the new tax law does far more than cut corporate taxes.

Second, whether cutting corporate taxes is good or bad thing depends strongly on the size of the cut.

Third, if you mean to imply that the majority of academic economists agree that the new tax laws will have a net beneficial effect for the economy over the long term, then I'm pretty sure you're flat out wrong.

While there is uncertainty and debate regarding the extent to which lowering statutory corporate taxes to 20 percent might boost worker wages, the CEA’s claim that workers’ income would rise by $4,000 to $9,000 is well above the top of the range of consensus estimates.

https://www.pbs.org/newshour/economy/analysis-would-cutting-...

And a different view

https://taxfoundation.org/what-evidence-taxes-and-growth

Nearly every empirical study of taxes and economic growth published in a peer reviewed academic journal finds that tax increases harm economic growth.

A different view from a Koch funded libertarian climate change denying think tank.

I've been curious for a while why American left wing political organizations are opposed to a corporate tax rate being at the same level as European countries with significantly more left wing governments.

Why the push to follow EU nation's health care systems but be rabidly opposed to similar corporate tax policies?

I don’t have a source right now but I have heard that pre tax cut, the effective American rate was similar to the rest of the world for large corporations after deductions. Smaller companies who were unable to deduct got higher rates. I’m not familiar with what the situation is now, after the cuts.

each company is different, but your point is largely true. One can look the SEC filings to determine the ACUTAL rates payed by Apple, Nike,etc. There is a reason Nike's swoosh IP is held by a non-operating Ex-US entity in a complex accounting stunt. Yes, corporate taxes need to be simplified, but a race to the bottom of corporate rates will not end well for the US , Ireland or anyone.

A lot of people in the US right now are experiencing long-term financial strain. Those on the political right typically follow media streams which have convinced them that this is the result of regulations and taxes; those on the left follow media streams which have convinced them that it's the result of too much wealth being concentrated in the hands of too few people (and implicitly, that it's a result of policies from the political right).

Corporations have the resources to navigate tax loopholes that allow them to avoid paying their fair share of social responsibility, and any number of free market worshippers will regularly appear to say, "but of course, they have a responsibility to their shareholders to do so."

As a result of those two things together, corporate tax cuts are not popular on the left. If there were any evidence that high corporate tax rates were the root cause of financial strain for the average family in the US, or corporations weren't putting so much effort into dodging taxes, I suspect the left would care a lot less about whether they received tax cuts or not.

As it is, the situation has turned into monkeys and cucumbers (https://www.youtube.com/watch?v=meiU6TxysCg -- skip to 1:23 if you're in a hurry), and the left keeps seeing gifts laid at the feet of corporations in the name of trickle-down economics while social programs keep struggling for funding and more people keep needing social programs.

A few reasons:

First, they're not opposed to a lower corporate rate per se. They are opposed to a corporate tax rate cut that isn't offset by some tax increase elsewhere.

Second, the de facto tax rate is well below the de jure tax rate, due to the giant mess of loopholes and tax incentives we've accumulated. There's support for bringing the rate down and closing enough loopholes to keep the actual tax burden more or less constant, but that doesn't appear to be what's happening.

Third, their view of the European model is of broad based individual taxes coupled with relatively aggressive income redistribution. Their view of the American model is of very top heavy progressively weighted taxes coupled with minimal redistribution. There's a lot of support to moving toward the European model, but only as a holistic transition. European taxes with an American welfare state is seen as the worst of both worlds.

They are opposed to a corporate tax rate cut that isn't offset by some tax increase elsewhere.

Why? One of the ideas behind lowering taxes is to incentivize spending, which in corporate means expanding and, ideally, in the end, more taxes being paid overall, while the tax burden remains the same or lower.

The consensus view on the American left is that the idea you outlined is incorrect. Or, more precisely, that there theoretically exists some tax rate where lowering it would produce more overall revenue, but that empirically we appear to have already been well below that rate before the cut.

Walmart for example spent $0.3B out of $2.2B annual tax cut savings on that wage hike.

Sure, a dollar is always a dollar, but when you weigh that against loss of mortgage benefits, grad school stipends, fewer people with health insurance and most likely higher costs in coming years... then that one time bonus or slight wage increase disappears quite quickly.

Championing a few dollars (while being significant to a lot of people) is really just misdirection not to look behind the curtain, and frankly quite patronizing.

also, in considering the macroeconomic impact, one should probably net out the ~7500 employees Walmart laid off the same day they announced the increase wage.

Wow the tax cuts are so powerful that Starbucks went back in time and gave employees raises in July of 2016:

http://money.cnn.com/2016/07/11/news/companies/starbucks-bar...

Economic theory doesn't even suggest that companies would raise wages just because they have more after-tax profit. It predicts that they would invest so much that capital would bid up the price of labor by competing for workers in the marketplace. This obviously isn't what's happening here. John Cochrane covers this:

https://johnhcochrane.blogspot.com/2018/01/right-answer-wron...

Starbucks was just going to rise wages anyway, because the labor market has been tight (since before the tax cuts), and it saw an opportunity to simultaneously ingratiate itself to progressives and to the trump administration.

While this is true, my friend said they cut back everyone’s hours so they bring home the same pay at the end of the week. Might be worth calling that out if it’s true across the board and not just his store.

This works out to a little under $1 an hour raise in the best case.

$250,000,000 / 150,000 / 52 / 40 ~= $0.812

And, based on the statement, not all of that $250m is going towards raises.

$1 an hour is not peanuts for minimum-wage employees, but it's not a life changing amount either.

>1 an hour is not peanuts for minimum-wage employees, but it's not a life changing amount either

Who said it would be? Who thinks that min wage workers should all of a sudden make $75k / year?

When the phrases "partners" and "windfall" are bandied about with regards to those workers, I'd hope for wages that would allow them to work one job and support a family. That would be sufficiently life changing, IMO.

That's fair, I must have missed the 'windfall' bit

All that matters is the Narrative.

"Hey, we just robbed your country, take some pennies".

Employees wouldn't need that money if the tax cuts were spent on social programs.

What is Germany's corporate tax rate? Or France? Or Sweden? Why do Socialist leaning countries have a lower rate than the US did, and why is it opposed here by the left, but supported by the left in those countries?

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