Tuesday, December 26, 2006

Larry Kudlow is right that cutting corporate taxes could result in more money being paid to employees... but should, in the unlikely event corporate taxes were cut, should they use the money that way?

Presumably, companies are already paying their employees enough money for those employees to show up and work... so paying employees more money for the job they're doing would seem to be a waste of money. If an employer can get a competent worker to do a given job for $30,000, then paying $35,000 to that employee to do the same job is a waste of $5,000. To illustrate, the reverse of this is happening at Delphi, where management wants to stop paying high salaries to those employees who have jobs that can done just as well by others for a fraction of the money. Managers are not supposed to pay more than is necessary for anything, whether it be raw materials or salaries.

Sure, companies could use the 'extra' money to attract a higher caliber workforce in hopes the better employees would improve corporate profitability enough to justify their higher salaries... but employers already have the ability to go out and raise their compensation levels in the hopes of ending up more profitable. That they don't do so on a more frequent basis shows employers definitely feel that 'let's pay more for job X and Y, then sit back and watch the profits come in' is a concept that hasn't proven itself in the workplace.

And Kudlow ought to know this... I'm guessing he is so enamored of lowering taxes in general and corporate tax rates in particular that he's figuring that it's ok to cite a bad reason for doing something good...