Regardless of why you are leaving - it sounds like you don't have an offer letter in hand - so you aren't leaving in a finite term. If you had the next job all figured out and it was just waiting for some paperwork details or the end of a big deadline, I might say "be 100% forthcoming" and let them rearrange the salaries for the coworkers who are staying.
But when you're on the job hunt, you really don't know whether you'll be here 1 week, 1 month, or 1 year. So there's no real benefit in acting like you are leaving in a specific time frame. My thought is you don't need to say "I'm looking for a new job", but you can say "I'm really not happy".
Unless you think the person you'll be talking to is truly vindictive and cannot bear to hear a single negative thing, I suggest giving honest feedback a shot.
There's some reason beyond the money that makes you want to leave - it can be pretty much anything. Find a way to say it that isn't pointing a finger (and thus causing defensiveness) but is clear enough about the gaps in the job and your needs that aren't getting met. You want to be diplomatic and corporate-speak friendly here... this IS politics! Try to avoid blaming someone - stick with the environmental problem.
Try to avoid ultimatums - like "I don't see how I can continue to work here under these conditions", or "if this doesn't change, I'll quit" - it'll be perceived as either a threat or a promise - and either way, it's a declaration that you are no longer engaged in even trying to improve the job setup here. It's still possible to say "this situation is demoralizing" or "this environment makes me profoundly dissatisfied" - it's just short of that line and gets the point across.
For all you know, if you haven't said anything, you've missed an opportunity to fix it.
If you tell your boss you're leaving...
I'm sorry, but I would be doubtful if anyone on this forum could give you an accurate prediction. This is highly variable and totally unique to each situation. I can tell you I've done the following without getting fired:
- Demanded more salary when I had an offer letter in hand, and won. I stayed and it did no harm to my career.
- Told a boss who was making long term plans that I was actively looking - even with no offer letter - so that he knew in bidding work that he should not stake the bank on my skills.
In both cases, the trust I put in management was not misguided. But I also had a lot of reason to have faith - particularly bullet #2 I would not do with every boss or in every circumstance. I would absolutely NOT recommend it in every situation.
What would happen if I negotiated as if I plan on staying?
The way you speak about this, it sounds as if you expect a salary negotiation to be an intense affair with a lot of back and forth discussion. If you work on a contract where your continued work is highly debatable - perhaps that's true.
My experience in most salaried situations is that the most you'll see in a yearly salary discussion for a full time employee is the employee's recouting of their work, and the boss' assessment of it, followed by a number for next year's salary offered by the boss. I haven't seen a lot of cases where numbers are specifically mentioned, or much opportunity for debate. At best, there's a "why is this so low?" discussion where the boss tries to delineate economic conditions or performance issues.
Let me know if your experience is unique or different - but I'd think that in the average negotiation, you could stay quiet and the discussion would not go much differently.