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The absurdity of taxing state sector workers So BBC and other state sector workers may be forced to publish their tax returns… why?
The whole notion of taxing people paid with tax money strikes me as a nonsensical idea, a pointless circular exercise.
Tax costs a great deal of money to collect, so surely just making all state sector workers tax-free would save huge amounts of pointless circular administration which is in affect just giving them other people’s confiscated money with one hand and taking some back with the other. It is a pointless exercise and essentially a category error to treat public sector wages like private sector wages.
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The problem is that many public sector workers will earn money from sources other than their public salary and this is also taxable. Rental income, inheritance etc.
Also, try getting this measure past an electorate that is being taxed to buggary, without a riot.
Well, it may seem to involve avoidable expense, but there is the underlying issue of how to determine an appropriate [?] “net” pay for public sector work.
How are public sector pay scales to be determined?
The costs of working out a “net” pay and the effects of implementation would likely outweigh the inefficiencies you note.
The best answers for a broad spectrum is “outsourcing” through private contracting, which is basically hiring managers for the services (whether those services are “essential” or not).
We certainly can’t claim that uniformity of the tax codes is achieved by the present systems.
Why? I would thought people would appreciate the honesty as it ALL of what a state sector worker gets is tax extracted from the productive sector. Tax (re-)collected from a public sector workers public sector wages is pointless, it is circular, and the sooner people in the real private sector stop thinking of state sector workers as “just like us” the better. Taxing public sector wages is a book keeping exercise in deception to blur the difference.
It seems dangerous to me to exempt state workers from taxes for the sake of efficiency. There’s already enough of a divide without exempting them from the consequences of tax rises…unless you also say that every time a tax is raised on non-state workers, the state workers see their pay and benefits cut by the same amount.
Perry, I agree it is all circular. However, because of recent private sector pay cuts, a given position in the public sector now earns 20-30% more than the equivalent in the private sector, so if you were to reduce their salary by the supposed income tax, the public sector job would pay (tax free) not too far off the taxable salary in the private sector.
“So the bastards earn the same as us and don’t have to pay tax on it!” would go up the rallying cry at the marches in front of Downing Street.
Actually, now that I look at it like that, bring it on. 😉
As Mart says, one doesn’t really want to make public sector workers even more enthusiastic about voting for big government than they are now. Perhaps the solution is to combine tax exemption for public sector pay (and associated pay cut) with removal of the vote for public sector workers.
Easy. Current pay – current tax = net pay.
I *want* people to realise that there is a great divide. The more then merrier. We are not ‘all in this together’.
Works for me
I used to work for a museum, which was tax exempt. Some of the places I tried to buy things from got very exercised over the museum not paying taxes like everybody else.
Perry, I happen to agree with you ( it’s circular and a waste ) and have thought this way for some time.
Another, possibly subtle, reason for not doing it your way could be –
From my experience, there is a LARGE number of people in this country ( west of the Atlantic ! ) that have no idea how an economy works. Everything that is ‘paid for or comes from the government’ is somehow free. Milton Friedman, I think, once said something to the effect of ‘ Change ‘the government will pay for it’ to ‘the taxpayer will pay for it’ in ALL cases, written, spoken, electronic etc. and watch things change!
Doing things your way would FORCE people to start realizing exactly WHERE all of that money for so many USELESS ideas and programs is really coming from and we can’t have that now can we !!???
Why, people ( the taxpayers ? ) might actually get upset !!! /so
Oh I do! Indeed the more obvious it all becomes, the better.
“. . . it is circular, and the sooner people in the real private sector stop thinking of state sector workers as “just like us” the better. . . . ”
Yes. Absolutely.
But, as I think Jerry is sort of saying, perhaps that is exactly the myth the state wishes to reinforce and perpetuate.
That the state and its workers produce just like everyone else, earn just as honourably as everyone else and do as good and essential a job as everyone else.
Where would we be without them!
Indeed John but I am being somewhat disingenuous… I know full well why the state wants the theatre of state sector employees receiving tax with one hand and paying it back with another…it is indeed to maintain the notion that “they are just like us”.
I am just hoping to get people to focus on the underpinning absurdity and to realise it really is a “them and us” relationship rather than a “we are all in this together” relationship.
I want people to stop thinking of themselves as ‘citizens’ and start realising they are ‘subjects’ and yes, I am talking to our US readers who have fond illusions to the contrary just as much as to our UK readers.
I’d prefer to keep the current system, where it’s easy to compare the relative generosity of the public sector, instead of having to do a bunch of math to see if they’re doing well or badly. If you want to lower administration costs of taxation, make the tax system less complex and stupid for everybody.
But that treats state sector as if it was not materially different to the private sector, and it ain’t…
Lower administration costs is just the ‘selling point’ of my notion and it really has only a little to do with why I really want the state sector’s nature to stand out more starkly than it currently does.
Thinking about it some more, I think Perry’s essential point – which I now understand to be “the state sector IS different, it is parasitic” – is misconceived.
I doubt that he and I differ greatly on what sort of employments should and should not be in the public sector. And no doubt we could happily agree that lots of public sector employments shouldn’t exist at all, since they do not deliver necessary public services that cannot be delivered through the market and could not survive in a free market. And it is probably true that many public sector workers get paid more than they would get if they were left to the mercies of the market. And there is certainly a good dose of pretty much pure parasitism – the quangocracy springs to mind.
But that does not make the entire public sector parasitic. Some bits of it perfom useful functions that could not otherwise be performed. And some public sector workers, though they may work in jobs that could and should be in the private sector, get only what they would get in the free market (and some get less, for monopsonic reasons.)
Of course we don’t know exactly what jobs would exist at what wages if as much as possible was left to the market – that’s rather the point of markets – but it seems unlikely that a free market would entirely eschew doctors, nurses, teachers, even some employment regulators (though they’d be policing private contracts in private arbitration courts, rather than making ex cathedra regulations imposed on unwilling victims.)
So the problem with the bloated state sector, and the abandonment of the market for running whole swathes of economic life, is not precisely a problem of parasitism. It’s the usual problems of compulsion, misallocation of resources, and concealing of economic realities behind a morass of cross subsidies and forced redistribution.
Public sector workers are only parasites to the extent to which what they get paid, net, exceeds what they would get, net, in the market, if their job would exist in the market. If Perry thinks it would be good politics to accuse the entire public sector of being parasites, I think he is mistaken. It’s too easy to point to workers who are doing jobs that the vast majority of the population thinks are useful.
If all the state did was have police to chase burglars, courts to try them in and some sort of military to keep the mongols or whoever at bay, I would not have a problem with it.
But that is not the case. As it is, not every problem in the world when you reduce it back far enough has it’s root in state action… only the great majority of them, not 100%.
Yes, that is a reasonable characterisation of my position.
The vast majority of the population believes a great many contradictory things and politics, even the politics of anti-politics espoused in these parts, is the art of trying to focus a critical mass of people on the parts of those contradictions that are the ones you want them to focus on.
> Tax costs a great deal of money to collect
How much does it actually cost to collect the taxes of a state-paid employee?
How much does it cost to collect the taxes of an average taxpayer?
Perry:
It would be that simple if every public sector worker was employed centrally by the state. The administration becomes more complex for a local authority worker, where the pay is issued by a local authority, but the tax is collected by central government.
I would imagine that the proposal could result in the state directly employing more people, as there would be a significant incentive for public sector bodies to move away from external service providers, with their taxed employees.
That is fine by me. Much ‘privatisation’ is little more than an accountancy trick of the sort that the state hates when people in the private sector do it. I am very much in favour of reducing the size of the state but in no way does contracting out a government function make it any less of a government function… if anything it tends to act as yet another way in which the state and its appropriated money taints things that more properly belong entirely in the private sector.
For example contracting out monopoly residential waste disposal services is *not* the same as companies actually competing with each other (rather than for a local government contract) for a market share of those services to residential property owners. A private company *might* run a state monopoly residential waste disposal service better than a wholly council employed operation, but it is in no way less a creature of the owner of that state imposed monopoly… the local government in question.
RRS asked:
How are public sector pay scales to be determined?
Simple: pay them minimum wage. It’s not as if any of them do anything worth more than that.
Perry de Havilland:
All true, but deliberately disadvantaging the potential efficiencies of competitive tendering, in favour of centralised state provision, is in danger of making things worse in the vague hope of making them better.
Residential waste disposal is probably a good example to look at. In the ideal world, I’d like to see it collected on a privately operated pay-to-throw basis. However, I can see some merit in the argument that doing so would lead to fly-tipping issues, so I’m not too averse to the idea of funding the service through the state, but still maintaining competition, albeit competition for the market rather than competition in the market. What I really don’t like the idea of is an entirely state funded and state operated service, which would seem to be the logical conclusion of the approach you propose.
Hey! I got smited!
For pointing out that under the PdeH approach that tax cuts (myhtological) would call for an icrease in pay.
See what comes of typing too fast to beat the bot
“…albeit competition for the market rather than competition in the market.”
Sorry, but this is just incoherant. Is there some free market activity where one can bid for the monopoly? Perhaps if one competitor In the market can provide the service so much better and cheaper than anyone else that he holds a virtual monopoly (no one else wants to play), it might be said he competed for the market while in the market; but no, someone else would always be on the sideline looking for a better way, and inevitably, they will find it. The current fraud-speak of privatization is nothing more than that.
Here in Washington State, the liquor business is being privatized after many decades of state monopoly. The new law hands off the business to retailers with stores over 10.000 square feet, and the state will maintain a great deal of control of distributorships, licensing, and the usual revenue gathering mechanics. Not a great victory for the free market, unfortunately, but a great one for the government. Now they can rake in the cash without the bothersome details of actually running a business.
Not at all, you have just not understood it.
No, just that the easy way to figure it would be pay net-of-notional-tax (i.e. current pay minus current tax as it is now) rather that “here take this and now give me x% of it back”.
Actually, one of the most common tax protestor arguments here in the US is that section 861 of the internal revenue code specifies who is actually liable for income taxes, and that it only applies to residents of US territories (i.e. not state residents) and US government employees. For everyone else, paying income tax is “voluntary”…. Of course, the courts dismiss this argument as frivolous even tho if you read the tax code, that is actually what it says.
The “Easy” way of doing it would be to advertise jobs at particular “Equivalent” salary but have the deduction of tax be purely a paper exercise so that what actually gets paid is net of NIC and PAYE.
Interesting post – and interesting comments.
Of course the recent policy (in both the United States and Britain) of paying “market wages” to government officials (especially the higher ones) and providing “bonus payments” and other such, has added to the absurdity.
There is no such thing as a “public sector manager” (whatever their title).
And Civil Servants and Local Government officials should not be paid as if they were the CEO’s of companies.
The Town Clark is the Town Clark – not the “Chief Executive”.
And the clark at the local government hospital (if there must be government hospitals) is just that – the bloke who does the paperwork (not some “manager” who should get the pay and perks of someone who runs a private company).
Government services are not enterprises – there is real profit and loss accounting, and their is no normal bankruptcy (and so on).
To talk of “market wages” on “incentives” in such a situation is utterly absurd.
People used to go into government work because they wanted SECURITY and also a working environment governed by tradition and ritual (not competition).
To act “as if” such people were in the “private sector” does no good.
It wouldn’t work because the tax system takes both directly and indirectly. If you have a private sector person on £30K and a state person on £20k – how long before the public sector person starts arguing that they should get their fuel for 40p a litre rather than £1.40?
Move this argument further, and people on benefits would be able to claim that they should not be paying indirect tax either (in the name of government paperwork efficiencies!)
Before you know it, the tax payer will become extinct!
Ideologically, its the best way of showing how the tax payer is being screwed, but practically, its totally unworkable!
If you want people to be aware of the tax cost of public sector workers, you need to introduce a policy where all public sector workers have to display their pay grade on their ID badges.
It is the simple constant reminders that really make a difference!
One could be cruel, and simply declare that public employees have no “earned income.”
I am only talking about direct taxation.
Certainly someone on ‘benefits’ is a de facto state employee and it makes no sense whatsoever to tax ‘benefits’. Indeed that is perhaps the most preposterous example of giving with one hand and taking back with the other. Tax any real jobs they might also have by all means but it is simply bizarre to also tax a state benefit (of course I am also against the very notion of ‘state benefits’ but that is a separate argument really).
One reason to continue to collect taxes from public sector employees is that, otherwise, they will have no incentive at all to even think about opposing higher taxes. Do we want somewhere in the neighborhood of 40% of the public to feel no sting at all?
A more likely response is that they will just vote for pols who promise to raise taxes on “them” (bankers, the wealthy (whatever that means), companies…) to pay them even more.
Umm, Michael Lorry, since you claim to know “actually what it says”, have you ever actually read IRC §861? I’ll make it easy for you: here it is. Please show me precisely where in there it says what you claim.
This Code section is merely a definition of what constitues “income from sources within the United States.” It says nothing at all about who is liable for taxes. The “argument” is indeed frivolous.
The circularity of public sector wages applies only if the wages are paid by the same body (and the only body) which taxes income.
In the US that is not true. The wages of Federal employees are subject to state and local income tax (where applicable), the wages of state employees are subject to federal and (where applicable) local income tax, and the wages of local government employees are subject to federal and (where applicable) state income tax.
I agree the circular nonsense of taxing income derived from taxes is pointless, wasteful and disingenuous.
End it.
As to no votes, I have had the stance of state income=no vote for a very long time – one of the “extreme” stances in my original Manifesto.
A state income for voters is tantamount to vote-buying. Regardless, it is a massive vested interest.
We already have a form of precedent – MPs cannot resign, but are disqualified if they take income from
The Crown, meaning their voting is subject to vested interest., Hence the use of the appointment to a Warden of The Chiltern Hundreds, the post of which takes pay from the Crown.
We should remember, also, that in a Libertarian administration, most health and education workers would no longer be state employees…
BTW I heartily agree with Paul Marks on the “Town Clerk” aspect.
Yes… and what I am saying is that is an absurdity. I don’t see what difference it makes to the principle.
It is all still The State regardless of how many subdivisions your particular nation organises itself into. It just means that all wages-derived-from-taxes should be untaxed to avoid circularity. Of course it may suit the state to employ extra people at all levels of the government (central, regional, county, town, parish or whatever they are called in the particular corner of hell one lives in) to engage in the “one hand giveth and the other taketh away” exercise to see which part of the confiscatory apparatus gets to keep what 🙂
Sorry, Perry, I disagree: it is not “an absurdity”. Calling all these disparate political entities “The State” makes no more sense than calling all the nations on the planet “The World”. This is not like me having several bank accounts at different banks; that is all my money, however spread around. But the federal, state and local governments are separate entities, and properly need to be kept separate (as well as shrunk).
Otherwise you might just as well say that your bank accounts and mine are “The Money”. (Which would probably work out better for me than for you.)
Nope, they absolutely are all ‘The State’ regardless of where on the political flow chart they sit. Each subdivision of the state works within a linked legal and political context and treating them as being separate nations makes little sense.
‘Need to be’ is not the same as ‘are’. You know this better than I do, Laird. Perry does have a point.
That said, and as, I think it was Tim Carpenter, pointed out, the issue of tax on state employees is less important than the issue of their voting rights. I mean, I agree with Perry that it’s an absurdity, but I’m not sure what would the removal of that particular absurdity achieve by way of advancement towards more freedom.
Laird,
The language I am speaking of was aparently amended out in 2010, if you look at the amendment history on the link you provided.
Michael, I can’t see that in the amendment history, at least not in the 2010 amendments (and I didn’t see it in a quick scan of earlier ones, either). Please point me to the specific language to which you’re referring.
Somewhere around here I believe I have old copies of the 1954 and 1986 Tax Codes (although I might have thrown them out by now). If I can find either, I’ll see what the language in this section used to be.
If taxes were removed from public sector workers, how on earth would the state otherwise be able to apply the social engineering aspects of them to these people?