Against the backdrop of rising unemployment rates and the government's implementation of tax reduction policies, this paper examines the impact of tax burden on firms’ labor demand using data from the World Bank's 2012 China Enterprise Survey. Based on theoretical analysis of the income effect and substitution effect of tax revenue, the empirical analysis in this study reveals that tax burden significantly reduces firms’ labor demand. Heterogeneity tests indicate that this inhibitory effect is only present in samples with weak labor protection. This research provides theoretical support for the government to further implement tax reduction policies, stimulate firms’ labor demand, and promote economic development.