Do federal taxes reduce the effective cost of federal employees?

Since federal employees pay federal income taxes on their wages, is the government essentially getting a ~30% (depending on tax bracket, etc.) rebate on their services?

Note that tax bracket and effective tax rate are different things. Even if you are in the 25% tax bracket, you might be paying a 10% effective tax rate or less depending on your deductions, exemptions, etc.


But, if a federal employee is pay an effective tax rate of 10%, is the government essentially getting a 10% discount on his or her services?

Let’s look at the logic of this statement. If it were true that the government were getting a bargain, what would the consequences be? You would think that federal wages would soar, both because the government could afford to pay higher than industry standard and because higher wages move employees into higher tax brackets so they would pay a higher percentage in taxes.

Yet this doesn’t happen. Federal employees don’t make especially high wages for their industries. In fact, the higher the wage, the less competitive they are compared to their industries. Washington employs tens of thousands of lawyers, e.g., but their pay is notoriously bottom end. Any first year out of Harvard makes on average far more than any high-ranking federal lawyer.

You can ask a similar question about most industries. Everybody needs cars, so do auto dealerships get a rebate because their employees buy cars? Everybody needs groceries, so do supermarkets get a rebate because their employees buy food? Not really. Across all industries, every employee on average buys a similar basket of goods and services and pays a similar range of taxes. Some portion of every person’s wages goes back into that industry. There may be slight variations in scope but the basic principal doesn’t vary.

Federal agencies don’t just collect money and throw it in a bonfire. They use the money to pay for government services (including the salaries of federal employees).

So if the government is getting a discount on its employee’s services, that employee in turn is receiving a share of government services in lieu of that missing salary.

A discount compared to what? Remember, the government collects the same percentage from people who aren’t working for the government, too.

You could look at it that way, but it’s basically irrelevant. Assuming all else equal otherwise (and not to start a debate about how all else isn’t equal otherwise in practice) the govt gets the same ‘rebate’ on the wages of ‘private sector’ workers employed by govt contractors as it does on the ‘public sector’ workers it employs directly. Whether the govt uses labor directly or indirectly for its purposes, it gets that ‘rebate’ on any labor subject to US taxes.

Or yes, superseded by Chronos’ post, discount compared to what?

If the choice is between a contractor and an employee than there’s definitely no difference since the gov’t would get taxes anyway. On the other hand, if the choice is between having 15% unemployment and no increase in government workers versus 10% unemployment and a lot of government workers, there would be a minor discount since those unemployed would not have been paying taxes at all. (In addition to the multiplier effect on the economy from the newly employed spending it.)

It gets trickier if you consider new jobs that are not replacing contractors when we are at close to 5% unemployment. Presumably a lot of the incoming workers would have had jobs elsewhere instead, so there would be little discount there.

It’s true on a static basis, ie before debating an overall ‘multiplier’, additional govt outlay used to buy labor costs less than the headline number because some of it automatically flows back around to the govt via taxes. But it’s still equally true (on an ‘all else equal’ basis) for hiring more govt workers or hiring more contractors to hire more private sector workers to go from 15>10% unemployment, or any combination.

It’s no secret that full employment makes for good government revenue, so you have to decide if the employee would otherwise be unemployed or privately employed. If the former, then yes, the government gets a discount. If the latter, then no, since they’re sacrificing a net gain (taxes from a private sector job) for a net loss.

That is an exaggeration. About half of Harvard grads go straight to Biglaw firms and make $120K and up to start. But the other half don’t, and many are lucky to start at $60K. The median salary for DOJ attorneys, to use one attorney-heavy agency, is $128K.

I can’t find any salary info on that page.

But this page doesn’t confirm it.

$160,000.00 is the starting Biglaw salary in New York, Chicago, and possibly Boston. In other major cities it’s as low as $120K. Hence “and up.” At any rate, the lower salaried Harvard grads make considerably less than federal employees.

“The government” isn’t a single entity. A civil servant’s income tax doesn’t go to the agency that employs him/her. It goes to the US treasury, just like every other worker’s. So from the Treasury Department’s standpoint, it doesn’t make any difference if you work for the government or not. And from a government agency’s standpoint, it doesn’t matter that part of the paycheck ends up being paid as taxes.

Mainly because the lower salaried grads are going into federal employment!