If a government decides to cut all the salaries of all pubic servants by 2%, is this different in any meaningful way from legislating a surtax on the salaries of public servants?
Of course its different. In lowering wages, the government is acting as an employer, not as a government. Do you think if Microsoft lowers wages, they are taxing their employees? All they are doing is cutting expenses, like paying less for toilet paper, unflattering as that sounds. (I am a government employee BTW).
In addition, by lowering wages the government also loses the benefit of taxes taken out of those wages. It can’t BE an additional tax, if the end result is actually less tax revenue.
It is only different in a meaningful way if you believe that words have meaning.
Thanks for the reply. Maybe I was being unclear. I was not talking about the words used to describe the situation, but what was actually happening.
Imagine a government with a tax revenue of $100 000. It has a single employee who it pays $50 000, and the other $50 000 goes into programs of some kind.
It cuts the employee’s salary by 2%. Now the employee gets $49 000 and the government has $51 000 to spend on programs (ignoring the fact that its tax revenue may have been slightly reduced by the pay cut.)
Alternatively, it puts a surtax of $1000 on the employee’s salary. Now the employee has $49 000 to spend and the government has $51 000.
Is this not very similar?
Numerically, it is similar, but one of those actions is a tax and one is not.
For example, compare these two statements:
“Mr. Smith died in a government-run hospital.”
“Mr. Smith was killed by a government-run hospital.”
In both cases, we have a government-run hospital and a dead person. But the word “died” does not have the same meaning as “killed” even though they both imply death.
Likewise, the word “tax” does not have the same meaning as “salary decrease” even if they both reduce your available cash by the same amount.
Mixing up words is just doubleplusungood.
Again, no. That’s like saying if the goverment pays less for lightbulbs (thereby giving it an additional $1000 to spend on programs) somehow that’s a tax. It isn’t. Wages are just an expense governments have just like any business. If the government gets a good deal from the electric company, they aren’t taxing the electric company by paying less. They are participating in the open market for energy, as a buyer that is as self-interested in the best deal as any buyer.
And, as I said, you can’t discount the reduced tax revenue. That’s what shows you the action is not a tax. Is it “like” a tax in that it contributes revenue to the coffers? Sure. But in that case every purchasing decision is “like” a tax in the very same way.
Lazy, remember those folks lazing about the bar in Casablanca.
I put it to you that kissing your lover and kissing your mother are very different things, although a kiss is just a kiss.
The same goes for the transfer of funds to the government. Income cuts and taxation increases are very different things, although a transfer of funds to the government is just a transfer of funds to the government.
“Going into programs” is paying employees.
I think Lazy’s intent was that the surtax would be exactly equal to the reduction in salary minus any small difference due to slightly lower tax revenue from the lower salary in the other scenario. So the surtax would need to be slightly less than $1000. And yes, in that situation, the two scenarios would be fiscally identical.
If you asked me why kissing my mother was different then kissing my girlfriend, I could give you an answer. Lazy was asking why taxing public employees is different then lowering their salary. Can you give him an answer?
True in general, not obviously true in the case posited in the OP.
Thanks again for the response.
I think two issues are getting a little confused here (not necessarily by you). In my OP, I was really wondering if there was any substantive difference between the two things, not what the proper word to call it was. Not that I think words don’t matter, but I want to understand what is really going on.
If I am reading correctly, you are saying there are two things that make cutting a public servant’s salary different from a surtax: (1) cutting the salary is a market transaction and a tax is not, and (2) if the “tax” affects other taxes, it is not a tax. Am I right in reading what you are saying in this way?
For example, if the government passed legislation requiring companies to sell them light bulbs at a discount, then this would more closely resemble a tax?
Or if a government discarded normal labour-relations law and simply legislated salaries this would be more like a tax?
Paying the employee less leads to the government having more money available of the money they already have.
Taxing the employee more leads to the government getting more money from the employee’s income. OK, so since it’s a government employee it’s money gotten back, but still it’s money the government keeps vs money the government gets.
You guys don’t see a difference between “keeping what you already had” and “getting something you didn’t have”?
Yeah, but my question is really in what exactly do they differ (re taxes, not deaths).
For example, if I said the GDR was not a dictatorship because it was called the German Democratic Republic and words have meaning, that would be absurd.
I am not claiming the tax and salary cut are identical in every respect. I am wondering how significant the difference really is.
Yeah, I think this would keep things more to the point.
Well, it might be a transfer.
That’s not really analagous to the OP’s question though. If the gov’t will only buy lightbulbs at 2% below what they were paying before, is that any different then putting a tax on all lightbulbs sold to the gov’t of 2% an paying the full price.
Not really. Especially since most taxes are with-held by your employer. There isn’t really any difference between the gov’t saying we’re going to withhold X dollars from you and then take it at the end of the year, as opposed to their saying they’re going to just not give you X dollars.
Suppose the government gave its employees a raise, and simultaneously imposed a surtax that would take away exactly the amount the income had been raised by. This might make no difference from the employees’ point of view, but from the government’s point of view it might be a sneaky way of taking funds from whatever governmental agency or section of the budget had the responsibility for paying those employees, and redistrubting it to other governmental agencies or budgetary items that receive the tax money.
That’s a good answer.
In the 80’s, the US started taxing SS payments. From the recipients point of view, this seems analogous to just cutting benefits. The gov’t sends you a check, then it takes some of that check back in income tax. Whats the point?
But SS taxes are legally earmarked for the SS fund or SS payments. Income tax revenues go to the general fund. So from the gov’ts point of view, it was (a rather ass-backwards) way of using SS taxes to buy planes and bombs, something they couldn’t do otherwise.
Of course, that only makes a difference to the internal accounting of the gov’t. The gov’t bottom line remains unchanged.
OK. My question is: how are they different?
Speaking as a public servant. I work for a city. The city does not tax my income. If my income were reduced*, it would pull fewer funds from the city’s outgo accounts, without adding to the city’s income accounts. And the amount of income tax going to the state and federal government would decrease.
One reason why that matters, a lot, is that my paycheck is paid mostly from project accounts, and the funds come from state and federal transportation and environmental grants or from gas taxes, developer’s fees, and a local 1/2 cent sales tax for transportation only. Those accounts are reserved to certain purposes, so a savings there can only be spent on other transportation and environmental projects.
That’s one of the reasons that when the city laid off more than a quarter of it’s employees, it didn’t lay off any engineers. It was the city’s general fund that was going to go into the red and laying us off wouldn’t have preserved any general fund money.
Long story short, it’s not a tax. Also there is no “the government,” there’s different municipalities, agencies, states, and departments of the federal government. Reducing my paycheck will affect all of those bodies in different ways and none of those ways would be the same as a tax.
If the city slapped a payroll tax on me, it could put it in the general fund, where it could do what it wanted. Reducing my paycheck by paying me less would give the general fund jack all.
- If you follow Stockton news, yes, my income has been reduced. They’ve added unpaid furlough days, added a charge for our medical insurance (and changed the insurance so that there’s a higher deductible), and returned the employees portion of our retirement contribution to us. These across the board changes benefitted them more in the case of employees paid by the general fund.
I made this a footnote because I didn’t want to get into fiddling with the difference between pay cuts and an effective reduction of income. (Since the med and ret come out pre-tax, the state and feds are getting less, too.)