
Thousands of Starbucks Employees Are Getting Raises After GOP Tax Cuts - kimsk112
http://fortune.com/2018/01/24/starbucks-employees-getting-raises-gop-tax-cuts/
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KerrickStaley
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%.

~~~
meritt
> 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.

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vec
As a reminder, before the inevitable flame war starts,
[http://lesswrong.com/lw/gz/policy_debates_should_not_appear_...](http://lesswrong.com/lw/gz/policy_debates_should_not_appear_onesided/)

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!

~~~
JPKab
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?

~~~
vec
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.

~~~
bassman9000
_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.

~~~
vec
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.

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lewis500
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...](http://money.cnn.com/2016/07/11/news/companies/starbucks-barista-
raises/index.html)

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...](https://johnhcochrane.blogspot.com/2018/01/right-answer-wrong-
reason.html)

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.

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jarjoura
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.

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falcolas
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.

~~~
EpicEng
>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?

~~~
falcolas
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.

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

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ljnelson
All that matters is the Narrative.

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jbob2000
"Hey, we just robbed your country, take some pennies".

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

~~~
JPKab
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?

