The Truth About Big Business, Tax Breaks, and Stimulus Packages

We often hear that big corporations need to pay their employees more. Income inequality is the result of these kinds of businesses, at least according to some people. The truth is that big corporations really don’t cause income inequality. On top of that, big corporations don’t get to keep everything they make in sales.

There seems to be this false notion amongst minimum wage supporters that revenue means income. Revenue is simply a fancier word for sales. If anybody thinks of it as income, it should only be thought of as gross income.

Revenue and Net Income

As I mentioned, total revenue isn’t the “take home” amount in finance. Below are some examples of some corporations that make what looks like a lot of money. The annual additional cost of a minimum wage increase to $15 per hour will also be listed. This minimum wage increase in X hours per week is for all the employees not in management.

  • Walmart (2014)
    • Revenue: $476.294 billion
    • Net Income: $16.022 billion
    • $15 per Hour Additional Cost (20 Hours per Week): $10.2 billion
    • $15 per Hour Additional Cost (30 Hours per Week): $15.3 billion
    • $15 per Hour Additional Cost (40 Hours per Week): $20.5 billion
  • McDonalds (2013)
    • Revenue: $28.1 billion
    • Net Income: $5.58 billion
    • $15 per Hour Additional Cost (20 Hours per Week): $5.87 billion
    • $15 per Hour Additional Cost (30 Hours per Week): $8.8 billion
    • $15 per Hour Additional Cost (40 Hours per Week): $11.7 billion
  • Papa John’s International (2013)
    • Revenue: $1.4 billion
    • Net Income: $69.5 million
    • $15 per Hour Additional Cost (20 Hours per Week): $88.1 million
    • $15 per Hour Additional Cost (30 Hours per Week): $132.2 million
    • $15 per Hour Additional Cost (40 Hours per Week): $176.2 million
  • Chipotle Mexican Grill (2014)
    • Revenue: $4.1 billion
    • Net Income: $445.3 million
    • $15 per Hour Additional Cost (20 Hours per Week): $198.6 million
    • $15 per Hour Additional Cost (30 Hours per Week): $297.9 million
    • $15 per Hour Additional Cost (40 Hours per Week): $397.2 million
  • Macy’s Inc. (2014)
    • Revenue: $27.9 billion
    • Net Income: $1.486 billion
    • $15 per Hour Additional Cost (20 Hours per Week): $1.27 billion
    • $15 per Hour Additional Cost (30 Hours per Week): $1.9 billion
    • $15 per Hour Additional Cost (40 Hours per Week): $2.5 billion
  • Starbucks Coffee (2014)
    • Revenue: $16.4 billion
    • Net Income: $2.068 billion
    • $15 per Hour Additional Cost (20 Hours per Week): $995.4 million
    • $15 per Hour Additional Cost (30 Hours per Week): $1.5 billion
    • $15 per Hour Additional Cost (40 Hours per Week): $1.99 billion

As we can see, some of these businesses can raise their minimum wages to $15 per hour. However, it comes with a price: Cutting jobs or cutting hours. When these businesses cannot handle people working 30 – 40 hours per week, they need to cut nearly all employees’ hours down to 20 hours per week in order to afford such a sharp increase. The reason why most businesses decide to cut hours or jobs instead of just taking less money is because businesses usually have debt that needs to be paid at some point.

Raising Business Taxes Won’t Help

How much do you think these six major corporations pay in taxes? You might be surprised to know that none of them are paying less than 31 percent. There are plenty of people that think these companies should pay more in taxes. Below is a list of these six companies and their tax rates.

  • Walmart
    • Income Before Tax: $24.6 billion
    • Income Tax Expense: $8.1 billion
    • Income Tax Rate: 32.87%
  • McDonalds
    • Income Before Tax: $8.2 billion
    • Income Tax Expense: $2.6 billion
    • Income Tax Rate: 31.92%
  • Papa John’s International
    • Income Before Tax: $106.1 million
    • Income Tax Expense: $33.1 million
    • Income Tax Rate: 31.22%
  • Chipotle Mexican Grill
    • Income Before Tax: $714.3 million
    • Income Tax Expense: $268.9 million
    • Income Tax Rate: 37.65%
  • Macy’s Inc.
    • Income Before Tax: $2.29 billion
    • Income Tax Expense: $804 million
    • Income Tax Rate: 35.11%
  • Starbucks Coffee
    • Income Before Tax: $3.16 billion
    • Income Tax Expense: $1.09 billion
    • Income Tax Rate: 34.56%

If you want to see an economy grow, we need more people to be employed. The more people the are who are employed and paying taxes, the better off the economy will be. This is partially because there’s less money that needs to be distributed in welfare (food stamps, WIC, medicaid, etc.). This is also partially due to the fact that consumers will spend money in a way that spreads it to many different businesses.

Tax Breaks Redistribute Wealth Better Than Stimulus Packages

When we give tax breaks to businesses in the United States, more people are able to be employed. When we employ more people, we redistribute the wealth in the form of wages. The consumers then redistribute this wealth even further by shopping at a wide variety of stores. So not only does our nation save money when it doesn’t have to pay out so much in welfare benefits (due to people mostly supporting themselves), the country also gets tax revenue.

This is what it would look like if we lowered these six companies’ tax rates to 30 percent:

  • Walmart
    • 30% Tax Rate Savings: $708.2 million
    • Full-Time Minimum Wage Employees That Could Be Added: 50,876
    • Tax Revenue From Employees (W/O Deductibles): $83.1 million
  • McDonalds
    • 30% Tax Rate Savings: $157.2 million
    • Full-Time Minimum Wage Employees That Could Be Added: 11,297
    • Tax Revenue From Employees (W/O Deductibles): $18.46 million
  • Papa John’s International
    • 30% Tax Rate Savings: $1.29 million
    • Full-Time Minimum Wage Employees That Could Be Added: 93
    • Tax Revenue From Employees (W/O Deductibles): $152,306.93
  • Chipotle Mexican Grill
    • 30% Tax Rate Savings: $54.6 million
    • Full-Time Minimum Wage Employees That Could Be Added: 3,925
    • Tax Revenue From Employees (W/O Deductibles): $6.4 million
  • Macy’s Inc.
    • 30% Tax Rate Savings: $117 million
    • Full-Time Minimum Wage Employees That Could Be Added: 8,405
    • Tax Revenue From Employees (W/O Deductibles): $13.7 million
  • Starbucks Coffee
    • 30% Tax Rate Savings: $144 million
    • Full-Time Minimum Wage Employees That Could Be Added: 10,351
    • Tax Revenue From Employees (W/O Deductibles): $16.9 million
  • OVERALL
    • Tax Savings: $1.18 billion
    • Full-Time Minimum Wage Employees That Could Be Added: 84,948
    • Tax Revenue From Employees (W/O Deductibles): $138.8 million

You might be thinking, “How can you say $1.18 billion in tax breaks helps our nation’s economy when only $138.8 million is what we would make in tax revenue from those extra jobs?” Simply, it helps because instead of the federal government getting $1.18 billion, American households will have a collective post-tax income of $1.04 billion. This means that, potentially, there’s a lot of money that could be spent across the nation just from these six major corporations.

The redistribution of this $1.04 billion depends on what those 84,948 people do with it. Some will spend a lot of it on their families, some will spend it for college, and some will not spend, but rather save their money. The local economies would see a boost that puts even the best stimulus packages to shame. This is one way that money is naturally pumped into an economy. When money is naturally flowing, it takes a while for inflation to kick in.

However, when we unnaturally pump money into the economy by having the federal government distribute funds to the people, we find that inflation may occur more than we would like to see. This is because it’s public information. And businesses that hear about surges of money coming into the economy will usually have promotions, but many will end up raising their prices in the long run.

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