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<font face="Arial" size="2">http://www.mises.org/fullstory.asp?control=1038</font>
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<font face="Arial" size="2"><font face="Verdana" color="#002864" size="5"><strong>"Less For Our Labor" Day?</strong></font>
<font size="4">by Gary Galles</font>
<font size="2">[Posted September 2, 2002]</font>
<font size="2">[img][/img] Every
Labor Day, the U.S. is carpet-bombed with politicians' rhetoric extolling
working Americans' very real and substantial contributions to our society,
followed by words of devotion to their interests. From their speeches,
you would think that the government was doing wonderful things to help workers. </font>
<font size="2">But, in fact, with the average American spending more to
fund government than to buy food, clothing, and shelter combined, the greatest
impact the government has on those of us for whom it cares so much is
through the huge gap it creates between the value of our productive
contribution to others in the workplace and what we actually take home.</font>
<font size="2">In other words, the government's primary contribution to our
lives is to make us substantially underpaid for the productive work we do,
judged by the line labeled"net" on our pay stubs. But because our
net is all that most of us really look at any more, we tend to blame our
employers rather than the government for that underpayment</font>
<font size="2">If you are one of those whose net pay makes you feel
underappreciated by your employer on"your" holiday, remember that
what your employer pays for your services is far greater than what you net.
The grasping hand of the government that is"honoring" you is
primarily to blame for the difference between what you are"worth"
to your employer in productivity and what makes it to your bank account.</font>
<font size="2">The most obvious difference between your gross and net pay
is income taxes. But if you are like most, you are now so accustomed to income
tax withholdings--which you can do little about but change your claimed
exemptions at the beginning of the year--that you don't even look at the
amount withheld from your pay any more. Labor Day is a good time to take
another look at how much of your compensation goes directly from your employer
to the IRS, rather than to you.</font>
<font size="2">Social Security and Medicare taxes, which are greater than
income taxes for a substantial majority of Americans, also create a huge gap
between workers' compensation and their net pay. Some do not even know that
7.65 percent of their pay goes toward Social Security and Medicare taxes.
Those who do notice often say"I was robbed" as they get their
paycheck (remember what you or your children said upon receipt of that first
"real" check, if you have forgotten). </font>
<font size="2">But even then, they recognize only half of the tax cost,
because employers must also"contribute" an equal amount on your
behalf, an amount that really comes out of your pocket. Employers compare
their estimate of your productive contribution with the cost of your entire
compensation package. </font>
<font size="2">The result is that, since employers know they must bear this
7.65-percent tax over and above the wages they pay, they offer less in wages.
But employers, rather than the government, get the blame for the resulting
underpayment for our skills.</font>
<font size="2">Other taxes supposedly borne by employers are also borne by
employees in reduced net pay (or higher prices for the products they buy,
which is analytically equivalent), as well. Unemployment taxes and"workman's
comp" payments may be officially paid by your employer, but workers
actually bear any resulting burdens employers can anticipate from hiring them. Sales
and excise taxes also lower the net value to purchasers of the goods and
services workers produce.</font>
<font size="2">Similarly, corporate taxes impose a burden on workers,
either by reducing their pay or increasing prices they must pay out of their
earnings. In each of these cases, you may blame your employer for the
lower real wages that result, but the government actually gets the money,
along with accolades from taxpayers who think they are less burdened (instead
of indirectly burdened) as a result.</font>
<font size="2">Further, because all of these taxes reduce saving and
investment, they also reduce the accumulation of capital over time below what
it would have been otherwise. With fewer tools, workers are less
productive, and they receive less income as a result.</font>
<font size="2">Benefits which the government mandates employers to provide
their workers also really come out of workers' pockets, because that cost is
part of their total compensation package, which must be covered by the value
of worker output to their employer. Similarly, the productivity-reducing costs
of complying with regulatory burdens (a"tax" of hundreds of billion
dollars a year) reduce take home pay.</font>
<font size="2">Labor Day is intended to recognize and honor the
contributions of the working men and women of America, and to give politicians
a chance to make speeches to show how they represent the interests of every
worker. But rather than a holiday that mainly reminds me how much the
government makes me underpaid with what they squeeze out of what I earn, I
would feel far more appreciated if the government just took less instead.</font>
<hr align="left" width="33%" SIZE="1">
<font size="2">Gary M. Galles is a professor of economics at Pepperdine
University. Send him MAIL, and
see his Mises.org Articles
Archive.</font></font>
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