Well, in my case, if kissing your lover had been a city income surtax, maybe the city wouldn’t have gone bankrupt. Since it was an income reduction (kissing your mother) they filed bankruptcy last month despite layoffs, shifting benefits, and income reductions for PD and FD.
Question: since the city saved 100% of the salary and benefits of every employee they laid off, was that a 157% income tax on those employees?
Thanks. This is an excellent example of what I was looking for.
Both the pay cut and tax hike would result in the employee having less money and the government having more, but there are a number of ways it could be different.
The government usually can’t raise taxes on a particular type of employee, so hiking taxes would apply to everyone. In the pay cut scenario, all the burden is on the government employees.
There might be differences in timing. The employees might get to keep the money a bit longer if it’s a tax hike, but if it’s a pay cut, they never have possession of it.
Taxes are generally paid on income after deductions, so the tax hike would affect different employees differently. Some might even end up paying no extra tax. The salary cut would hit all of them equivalently.
The government isn’t a homogenous entity. Money saved by pay cuts might belong to a different budget than money raised by tax hikes.
Thanks for your answers. This is the sort of thing I was wondering about. I think what you are saying resembles the situations given by Thudlow Boink and Simplicio. If your salary had been cut and the money saved put into the same department that you work for, then the difference between that and a tax would be much less, no?
Well, maybe if they continued to work…
By cutting the worker’s salary, the agency is reducing expenses. Instead of spending $100 they are spending <$100.
By leaving the worker’s salary the same and imposing an additional tax, the agency is on the hook for paying the amount in the first place. Even if they are getting it back in tax revenue eventually. They are still spending $100.
That is the difference.
A nice, concise summary, I think. Thanks.
You have point (1) exactly right, and its by far the more significant of my two points. Point (2) is really somewhat more semantic. A tax definitionally raises revenue. Anything that directly decreases revenue, really isn’t a tax. Taxes flow in. Expeditures flow out. A reduction in operating expenditures is not a tax.
Now, you might be treading into the subjective world of feelings. Regardless of whether its a tax or not, the employee gets less take home pay. The employee may feel the government-employer has taken something from them. But the government hasn’t taken anything from them in it’s governmental capacity; nothing that a private company couldn’t take from them equally.
Isn’t this roughly what Enron did? "We gave the partnership a $50M investement, then they paid us $50M to buy energy futures; look, our revenue is $50M higher. "
How about “all our employees are millionaires, there’s just a $975,000 clawback tax.”
Besides, there are several layers of government. What you call ‘income’ affects how the others tax that same employee. I don’t think a municipality or state can create federally tax-exempt income - so essentially, all the tax fiction would do is (a) drive down the employees’ wages and (b) transfer money from the stupid employer/local government to the federal government.
A lot of stuff it pegged to income, so increasing tax can sometimes cause more difficulties than simply reducing income.
For example, a lot of jurisdictions base child and/or spousal support on gross personal income, and have developed tables that set out how much should be paid based on the number of children and the income of the payor. They prefer to start with gross rather than net to avoid the problems that often arise with tax avoidance. For better or worse, that is the system.
Now imagine that you are paying child support in accordance with the government tables based on your income, but then the government significantly increases your taxes. You don’t get any reduction in what you are paying in child support simply because you have less money in your pocket after tax, for you pay based on your income. If instead the government simply paid you less, you could get the child support reduced because through no fault of your own, your income was reduced.
The same applies to further taxes that are based on federal taxes. I can’t comment on American taxes, for I am from Canada, so I’ll use myself as an example. My provincial taxes are based on a percentage of my federal taxes. If I am taxed more federally, I will also be taxed more provincially. If I am paid less, I will be taxed less both federally and provincially. I don’t know about you, but I’d rather lose income but pay less combined tax than keep my level of income and pray that the province is nice to me and reduces its tax despite the feds increasing their tax.
In other words, even if there is little or no fiscal difference between you and tax man with respect to the increased tax verses decreased revenue issue, it can have side effects that may not be nice when third parties do not integrate smoothly.
Cutting the salaries of all employees by 2% would be legal (assuming their employment contract gives the government the right to unilateraly cut salaries – an unlikely assumption). But a surtax on the salaries of public employees would probably be thrown out by the first court that ruled on it. General legal principles relating to equal treatment would make such a law very suspect.
Shouldn’t this be in great debates since OP has a huge axe to grind (being a teacher who is subject to a gov’t pay cut) and is not really looking for a factual answer but rather a confirmation that its salary shouldn’t be cut?
It’s a factual question about definitions, I.e. when is blue red?
Its a factual question, and the OP doesn’t seem to be having any trouble keeping whatever hypothetical baggage they might have out of the thread. I don’t see any value in moving threads based on trying to mindread what the OP’s motivations might be.
Plus, if you really think the thread should be moved, I think SOP is to PM a mod instead of makingn a potential hijacking post.
my .02 cents worth, not the same as a tax increase, as that employee can go somewhere else and make more money a tax increase means he still owes it even if he gets a job elsewhere.
I am a teacher who is probably going to be subject to a government pay cut, and I would love to see a “confirmation” that my salary shouldn’t be cut – rather tripled, for that matter – but I am looking for a factual answer and that is why I posted in GQ.
For what it is worth, what got me on this line of thought were a couple of editorials whose arguments would be more appropriate for Great Debates. I was curious about the solidity of the presuppositions behind those arguments.
If people want, I could open a thread in Great Debates to discuss those arguments, but to be honest that is not really what I am looking for here.
As mentioned, a lot of things are pegged to salary, rendering it very different from taxes levied. Pension schemes, for example - employer contributions to pension schemes are often expressed as a percentage of salary, so a salary cut would affect the pension but a tax increase would not. Benefits often work the same way.
Let me think. It would depend on which projects I was working on and how they were funded. If I’m working a specific project that’s funded by a state or federal or private grant, then the program managing the grant funds wouldn’t be invoiced for the amount saved.
If other expenses on the project rose, which can happen, the savings would just be spent on other parts of the project. If the project came in under the grant budget, then the granting program keeps the unused money and it rolls over to other projects next year (or to projects this year that went over budget). The grants are competative, so next year’s projects could be in other cities and other states. Either way, my department doesn’t benefit.
Now, if I was working on projects paid all or in part by earmarked local funds (gas tax, developer fees, Measure K . . .), the money saved would shift back to the main fund it came from (Arterial Road Maintenance, Traffic Control, Bicycle & Pedestrian Projects, etc.). That would be more likely to stay within my department, but wouldn’t necessarily stay in my section. And some of the accounts, like Safety and Building Maintenance, can be used by different departments, so we’d be jockeying to be the ones to use the funds.
And to further complicate things, most grants require a local match. The most typical is 80/20. So a project can have one or more outside grants that are then supported by one or more local accounts.
You can’t do it to Federal judges in any event:
*…The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services a Compensation, which shall not be diminished during their Continuance in Office.
*
U.S. Constitution, Art. III, Sec. 1.
Thanks Muffin, Yllaria, isaiahrobinson etc. I appreciate the thought that you put into your responses.
I think I can generalize what you are saying into 2 points:
(1) From the individual’s point of view, they are often not the same because the difference between gross and net income often matters for various calculations.
(2) From the government’s point of view, they are often not the same because, as Greg Charles put it, “the government isn’t a homogenous entity”.
Politicians get elected by cutting expenses, not by raising taxes, so even if there were no other difference, public perception in and of itself is enough to differentiate the to approaches.