How Income Tax Rates Affect the Marginal Cost of Job Creation

An employer's marginal income tax rate influences his or her incentives for hiring new employees.

	Our Universe	Alternate Universe
Marginal Tax Rate of Joe's Employer	25%	75%
Joe Gets a Raise	5,000	5,000
Additional cost of Joe's raise to Employer after tax	3,750	1,250
New Employee Salary	50,000	50,000
New Employee Payroll taxes	15,000	15,000
New Employee Equipment & Real Estate	35,000	35,000
Total Pre-tax cost of New Employee for one year	100,000	100,000
Total After-tax cost of New Employee for one year	75,000	25,000

Lower Tax Rates Apply to Highest Incomes

US taxpayers with incomes greater than $10 million and corporations pay income tax at a lower rate than persons with incomes between $500,000 and $10 million.