It’s Not Your Money
An argument that we hear repeatedly against taxes is that what we pay in taxes is our money and we should be able to keep it. Some even go so far as to say that the government is stealing that money from us. In this blog post, you will hear an argument for why that way of thinking is wrong from the perspective of a wage earner, someone in the bottom 99% of income earners.
It is fair to say that the job market in America is a competitive one. Actual wages are an agreement between the employer and employee about what a job is worth. Even with the economic downturn, companies will pay whatever it takes in wages and benefits to hire and retain their workers, no more. Low skilled jobs where there are plenty of workers will pay much less than a job that requires an advanced degree and years of skilled experience in which there are a limited number of people who are qualified.
If qualified workers are in short supply as we saw in Silicon Valley in the 90’s, then wages will go up as competition for the most skilled people heats up. By the late 90’s most companies were paying large signing bonuses to anybody who joined, and even paid bonuses to existing employees who suggested someone that got hired. The other side of that is that a few years later the dot com bubble burst. Companies reduced their labor cost any way they could, often through layoffs. However, some companies would lay off their higher paid employees, just to turn around and rehire that position for a much smaller wage. Anyway, that is what happened to my job in 2001.
If you were lucky enough to have multiple job offers at the same time, you would likely evaluate a number of factors before deciding which one to accept; quality of schools, crime rates, and the areas cost of living. When evaluating the cost of living you will consider the cost of housing, food and other consumables. However, you may also look at the areas tax structure; in other words, how much each areas tax burden is; sales and state taxes. All other factors being equal, the company with a higher cost of living will have to pay a higher salary to attract people to the area. The employee does not care so much about how much they make (gross wages), so long as they have the best lifestyle they can afford, and that means how much money they bring home.
The reality is that if taxes are reduced to the average wage earner, you may get an initial boost from the extra monthly disposable income. However, eventually the employer will offset the tax savings with slower wage growth each year or possibly even a wage reduction to bring your take home pay back into balance with what you job is worth in your area; the minimum they can pay you and have you want to stick around. Therefore, changes in taxation will have an impact in the short term only. In the long run your take home pay will be the same, with or without taxes.
Therefore, that money being paid in taxes, is not yours, it never was. It is just a number. If your gross wage says you make $20 an hour, and you pay 20% of that in taxes, then your real wage is $16 an hour. $16 an hour is what your job in your area is worth, not $20. If the law changed and somehow all taxes were abolished, you would get to enjoy that extra $4 and hour for a while. However, your employer would likely reduce future raises and offer lower wages to new hires, until he was again paying what the job was really worth. You cannot beat a system when you are not making the rules.
The Benefits of Taxation
Some might ask after reading the last section, if it does not matter what we pay in taxes, then why pay taxes, what is in it for me? How does paying taxes benefit me?
The answer is all around us. Almost everything substantial in society we owe to taxes; the roads we drive on, the sidewalks we walk on, the street lights that illuminate those roads and sidewalks, and the safety standards that make our vehicles safe to drive just for starters. Most of us have had the trappings of a modern society for so long that we have started taking it for granted. Many people fail to realize that what is paid in taxes is the cost to maintain our society, America. Without taxes, we would have the same living standard as some African countries that do not have the benefit of a functional government, such as Somalia.
Most medical and pharmaceutical advances would not have happened if not for tax money that paid for research programs.
Most technology would not exist today if not for research dollars paid for with tax money.
While I’m a pacifist at heart, the truth is, I would not have the freedom to write this blog, nor would you be able to disagree with me if not for the tax money and American blood that paid dearly for that right.
The next time you walk down the street and are not murdered, thank the tax dollars that pay for law enforcement to protect you.
Unless your parents were wealthy, you probably benefited from a public education paid for with tax dollars. Without which you could not afford to own the computer you are reading this on.
If you or anyone you know has ever been the victim of a fire, had a medical emergency, or even a cat stuck in a tree, you can thank your tax dollars for the firefighters, and paramedics that come to your rescue.
One thing that you will hear people say, even after they understand all that has been said above, is that it not fair. They may not have school age children, yet they still have to pay for schools. They do not drive, but they have to pay for roads and highways. People will accept that they have to pay for the things they need, but are reluctant if they have to pay for things they perceive has having no value to them. The answer to that argument is this: Most of those things you may not think you need, you still depend on in one way or another. You may not have school age children, but you benefit every day from having an educated workforce in this country that can provide the products and services you consume. You may not drive on the roads and highways, but the goods and services you use depend on them. In fact, you may be alive today simply because tax dollars paid for a police officer or a soldier somewhere that ensured that you have a safe place to live and work.
Some things our tax dollars pay for are simply humanitarian. Most of us have evolved to the point that we are able to think beyond just our own selfish needs. If we see a hungry child covered in grime, our heart goes out to them, and we feel compelled to help. If we see someone who has a disadvantage that others are taking advantage of, we want to step in and help that person. Most of us grew up thinking that this was a core American quality. A quality, that set us apart. It is what put us on the good-guys side in every battle. Taxes are a way of realizing that need to help.
Our economic system is very complex, so I will not go into great depth in this article as I have written extensively about it in other posts. Money (capital or wealth, whatever you want to call it) is in a constant state of flow from one person or company to the next. It never stays put for very long. When free from restrictions, money has a propensity to pool in the upper layers of society where they write the rules.
Take for example our earlier discussion about taxes and wages. If taxes are reduced, the employee may see a short term benefit, but the employer who makes the rules can reduce your wages, or reduce future raises so that eventually you no longer get that benefit, they do. At the end of the day the person who writes the rules takes home all the chips.
A progressive tax system is one that is funded more from high-income earners than from low-income earners. When taxes are in balance with the normal propensity for money to pool at the top, they act as a stabilizer shifting just enough back to the lower levels so that one group does not grow more than the others do. Some people call this wealth redistribution, but wealth is being redistributed every day without taxes. When done properly, taxes are wealth balancing. They help prevent an unfair flow of wealth to those who make the rules which leads to a system out of balance and greater wealth disparity between the haves and have not’s.
Recently, in the United States, taxes on the wealthy have been reduced to the point that enormous wealth has been redistributed to the wealthiest people, leaving much of the rest of the country impoverished. Higher taxes on the upper income layers of society are needed to be put the system back in balance. We are not playing a game of Monopoly here folks. It is not OK for only one person to win the game. We are all in this together, and either we all make it, or sink.
We have seen that the income tax is not taking away something that is otherwise ours. That money was never ours to begin with. We take home what our employers and we deem our job is worth, no more; taxes or no taxes. That portion of our gross wages that go to taxes benefit us in numerous ways, some not so obvious. Taxes are responsible for the very fabric of our society. They bring balance to a society that would otherwise spin out of control. They benefit all of us, and it costs us nothing.
If you have read my other posts, you will know that I am not a socialist, or a communist. I believe that Capitalism is the best form of economy. However, those that write the rules at the very top of the food chain see the world through very different glasses. They envision themselves as gods, and the rest of the masses simply here to worship them and serve. Such a world view does not support Capitalism, it is in fact it’s dreaded enemy. It will cause the Capitalist system to flail out of control, growing in fits and spurts, feeding the greed until they consume themselves. If we want to save Capitalism, save our way of life, or at least salvage as much of it as we can, we must wake up and stop trying to see the world through glasses crafted by the wealthiest few. We need to see for ourselves what makes the world tick. If we fail to learn and then act, we will all be doomed as this system destroys itself from the inside.