Here we go again. The press is all excited about the Tea Party because they ousted Richard Lugar as the Republican candidate for the Senatorial race in one of America’s reddest states, Indiana.
The Tea Party has garnered support from plenty of everyday Americans. These are mostly the people who look at their paychecks and see the amounts subtracted for various taxes and get extremely upset. All they can see is money being taken away from them and this is their primary concern.
What if, just for the sake of argument, we were to grant the idea that taxes are good for nothing and simply represent a “taking” by a government that is totally detached from the people? Then, what if taxes suddenly disappeared, with no measurable effects on daily life (somehow). Would people keep that money that had once gone to taxes?
The answer is no. Labor (whether it be skilled, unskilled, blue-collar, white-collar, or whatever) is a rare example of a principle of conventional economics that actually describes the truth. Labor works on supply and demand.
To keep the numbers simple, let’s just say that Joe the software engineer gets a salary of $100,000 per year. Under the “old” way, he paid $25,000 in taxes, after taking a few deductions, and so takes home $75,000. But now, after taxes have been done away with, he gets to keep the whole $100,000, right?
Wrong. Why would Joe’s company, Frustrating User Interface Incorporated, continue to pay him $100,000 when he used to be willing to work for $75,000 in take-home pay? They wouldn’t because they wouldn’t have to.
Companies pay the minimum that they can to get the labor that they need. It would be incredibly foolish to do otherwise. Workers determine the level at which they will accept a job by their calculated take-home pay – the net, not the gross. That’s the “supply” price for a worker’s labor.
Because of this, if taxes were eliminated, corporations would use the usual tricks, eliminating (then re-creating) positions, claiming hardship, etc., to knock their workers salaries down to the same old, “willing to work” levels. Joe used to take home $75,000, and now, without taxes, it’s the same.
Of course, the real story would be much worse than this. If taxes are significantly decreased, lots of people who work in the kinds of services that would be poorly provided by purely private enterprise would lose their jobs. This would flood the market with available labor (the REAL plan of the corporate masters) and salary levels would be pushed down even further than in the previous example.
And we would have no libraries, a lot fewer schools, little fire protection, and so many other deficits in our way of life.
If you’re proud to be an American, proudly pay your taxes. You are contributing to something imperfect but great.
Tom Rossi is a commentator on politics and social issues. He is a Ph.D. student in International Sustainable Development, concentrating in natural resource and economic policy. Tom greatly enjoys a hearty debate, especially over a hearty pint of Guinness.