>On May 6, 2008, at 10:16 PM, Bill Bartlett wrote:
>> A good reason to keep pointing out that the working class don't pay
>> income tax either, their employers do.
>
>Nonsense.
Not nonsense at all, logical analysis.
I've tried to explain before, but I don't mind trying again. I think you would surely accept the proposition that workers are not generally taken in by nominal wages, but rather look to what they actually receive in their pay packets. (Figuratively speaking, few if any workers get a pay packet with cash in it in this day and age.)
On the other hand, the accounting entry which is a workers nominal before tax wage, butters no bread, as the saying goes. A worker never gets it, doesn't count it and the tax deducted from this nominal wage (by the employer) and forwarded to the Tax office (by the employer) was never the employee's to pay to anyone.
Employers know and even openly admit that a tax reduction is a valid excuse for a nominal wage reduction. In other words, a reduction in net labour costs. Why else would they so consistently call for such tax cuts, if they derived no benefit from it?
Everything else being equal, the employing class know full well and usually admit openly that a tax reduction is a benefit to them, not to employees. That is to say, if the market price for labour remains unchanged, then the employer can reduce the nominal wage and still attract the same quality and quantity of workers. Or at the very least, the pressure for a wage rise will be eased as a result of an income tax cut. Which is the same thing in the long run.
Its just basic common sense.
To illustrate the point, take the case of employee fringe benefits. Which of course are paid in lieu of wages, usually because there is some technical advantage. Often a tax advantage.
For instance, fringe benefits packages are very often part of the income of employees in the charitable sector (even lowly employees) because these employers enjoy exemption from the Fringe Benefits Tax, a form of income tax nominally paid by employers. So they can and do substitute fringe benefits which are tax free, for cash wages which are fully taxable. Who enjoys the benefit? Why the employer of course, their net labour costs are reduced. This isn't a dodge, its the intended outcome. A concession granted by government to the charitable sector.
Not, you note, a concession granted to employees of the charitable sector. It isn't intended that they should have some special privilege, but that their employers should. It doesn't even occur to anyone to consider that this reduction in tax on employee remuneration would actually be just passed on by the employers in the charitable sector. They aren't THAT charitable! They can keep it, because their employees *net* remuneration is subject to market forces, so they DO keep it.
Likewise, non charitable employers substitute fringe benefits for cash wages where there is some marginal tax or other advantage in doing so. It only makes sense for them to do so, if the fringe benefits tax rate is even marginally lower than the income tax rate. Which is often the case for higher paid employees. But if we were to accept your analysis, that income tax nominally paid by employees is REALLY paid by them (and given that fringe benefits tax is nominally paid by employers) it is completely illogical for employers to substitute a remuneration which they have to pay tax on, for a form of remuneration for which the employee has to pay the tax.
Yet they do just that. On a mass scale. How do you reconcile this behaviour with your analysis? You can't of course, because your analysis is flawed. You are accepting at face value the myth that employees pay tax.
Bill Bartlett Bracknell Tas