Who really pays our taxes? Employees or employers?

roc_

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Very often (too often perhaps) this forum and numerous other Irish discussion forums are used to air grievances about the weight of taxation. But I was recently set wondering about this. Take the following observation, written over 150 years ago:


"... For instance, considerable agitation is often caused in the minds of the lower classes when they discover the share which they nominally, and to all appearance, actually, pay out of their wages in taxation (I believe thirty-five or forty per cent.). This sounds very grievous ; but in reality the labourer does not pay it, but his employer. If the workman had not to pay it, his wages would be less by just that sum; competition would still reduce them to the lowest rate at which life was possible..."
(Ruskin, Unto this Last, 1860)​


Does the principle still not hold? (Note that back then what we broadly call today the "middle classes" were broadly referred to as the "lower classes". And of course the minimum standard of life acceptable back then did not encompass the expectations that advances in modern consumerism have engendered etc.)

So - is it not true that it is effectively employers who pay all tax through their having to inflate the wage they pay out to ensure a certain standard of living for the employee? Think through the implications of that.
 


Watcher2

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Very often (too often perhaps) this forum and numerous other Irish discussion forums are used to air grievances about the weight of taxation. But I was recently set wondering about this. Take the following observation, written over 150 years ago:


"... In the minds of the lower classes when they discover the share which they nominally, and to all appearance, actually, pay out of their wages in taxation (I believe thirty-five or forty per cent.). This sounds very grievous ; but in reality the labourer does not pay it, but his employer. If the workman had not to pay it, his wages would be less by just that sum; competition would still reduce them to the lowest rate at which life was possible..."
(Ruskin, Unto this Last, 1860)​


Does the principle still not hold? (Note that back then what we broadly call today the "middle classes" were broadly referred to as the "lower classes". And of course the minimum standard of life acceptable back then did not encompass the expectations that advances in modern consumerism have engendered etc.)

So - is it not true that it is effectively employers who pay all tax through their having to inflate the wage they pay out to ensure a certain standard of living for the employee? Think through the implications of that.
From whom/where do the employers get the money to pay the taxes?

Move away from the concept of the physical payment of the funds to the tax man and more to upon what is the tax based. Its based on the services of the employee, his/her labour. There is also the employers PRSI but that's almost a separate issue.
 

General Urko

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EMPLOYEES PAY the employee's total, otherwise wages went be put through the roof!
 

roc_

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From whom/where do the employers get the money to pay the taxes?
Typically (ideally) they create wealth by conceiving of a product, building it, and distributing it where it contributes to the welfare and quality of life of society. Then, the banking system matches that "wealth" created with an appropriate amount of money, which it does by creating loans or money against that real increase in wealth which is expected to be created in the future.

EDIT - As regards other contributions above, forget the payment devices and so on for just a minute, so we can get back to the first principles.
 

GJG

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Very often (too often perhaps) this forum and numerous other Irish discussion forums are used to air grievances about the weight of taxation. But I was recently set wondering about this. Take the following observation, written over 150 years ago:

"... For instance, considerable agitation is often caused in the minds of the lower classes when they discover the share which they nominally, and to all appearance, actually, pay out of their wages in taxation (I believe thirty-five or forty per cent.). This sounds very grievous ; but in reality the labourer does not pay it, but his employer. If the workman had not to pay it, his wages would be less by just that sum; competition would still reduce them to the lowest rate at which life was possible..."
(Ruskin, Unto this Last, 1860)​


Does the principle still not hold? (Note that back then what we broadly call today the "middle classes" were broadly referred to as the "lower classes". And of course the minimum standard of life acceptable back then did not encompass the expectations that advances in modern consumerism have engendered etc.)

So - is it not true that it is effectively employers who pay all tax through their having to inflate the wage they pay out to ensure a certain standard of living for the employee? Think through the implications of that.
There has been plenty of thinking and writing done on this topic since 1860.

It is also a question that applies to VAT, which is, in theory, a sales tax paid by the consumer. However if you look at the prices of many products (whose prices are quoted including VAT) when the VAT rate went up from 23 per cent to 25 per cent, they were not changed.

This indicates that the business is working with a fixed price that they can command, and can't pass on cost increases - even VAT theoretically paid by the consumer - to the consumer.

But that isn't the end of the effect. If tax rates were to go high enough, they would drive some less efficient operators out of the market, and the remaining ones would better able to increase their prices; or VAT cuts would make the market more profitable and attract more comtetitors.
 

silverharp

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employees and customers. most companies operate on the basis that their costs are ~10% less than their revenue. if the gov ups a tax where the company writes the cheque , they will get back to their 10% by upping prices , getting rid of staff or giving pay lower pay rises
 

roc_

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... when the VAT rate went up from 23 per cent to 25 per cent, they were not changed...
Typically that sort of thing happens during a business downturn. They are effectively forced into accepting less.

The significant thing that changes there is a lowering of the employees standard of living and expectations.

If you continue on from the above paragraph I quoted, the author goes on to observe:


"... Similarly the lower orders agitated for the repeal of the corn laws, thinking they would be better off if bread were cheaper; never perceiving that as soon as bread was permanently cheaper, wages would permanently fall in precisely that proportion. The corn laws were rightly repealed; not, however, because they directly oppressed the poor, but because they indirectly oppressed them in causing a large quantity of their labour to be consumed unproductively. So also unnecessary taxation oppresses them, through destruction of capital, but the destiny of the poor depends primarily always on this one question of dueness of wages. Their distress (irrespectively of that caused by sloth, minor error, or crime) arises on the grand scale from the two reacting forces of competition and oppression..."
 

GJG

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Typically that sort of thing happens during a business downturn. They are effectively forced into accepting less.

The significant thing that changes there is a lowering of the employees standard of living and expectations.

If you continue on from the above paragraph I quoted, the author goes on to observe:

"... Similarly the lower orders agitated for the repeal of the corn laws, thinking they would be better off if bread were cheaper; never perceiving that as soon as bread was permanently cheaper, wages would permanently fall in precisely that proportion. The corn laws were rightly repealed; not, however, because they directly oppressed the poor, but because they indirectly oppressed them in causing a large quantity of their labour to be consumed unproductively. So also unnecessary taxation oppresses them, through destruction of capital, but the destiny of the poor depends primarily always on this one question of dueness of wages. Their distress (irrespectively of that caused by sloth, minor error, or crime) arises on the grand scale from the two reacting forces of competition and oppression..."
It is notable that you are quoting from a text that is more than 150 years old. Yes, of course, their is a major factor in setting wages, but only a fool would imagine that it was the only factor.

By your thesis, wages would have been cut substantially in 1989 and 1991 when VAT was cut from 25 to 21 per cent. They weren't.
 

loaf

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Of course a Marxist reading would focus on the wealth created by the labour - a wealth that is expropriated by the employer and given back in as minimal a way as possible via wages.

This is the political context; the class struggle context. A different kind of 'first principle'.
 

paulp

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Very often (too often perhaps) this forum and numerous other Irish discussion forums are used to air grievances about the weight of taxation. But I was recently set wondering about this. Take the following observation, written over 150 years ago:


"... For instance, considerable agitation is often caused in the minds of the lower classes when they discover the share which they nominally, and to all appearance, actually, pay out of their wages in taxation (I believe thirty-five or forty per cent.). This sounds very grievous ; but in reality the labourer does not pay it, but his employer. If the workman had not to pay it, his wages would be less by just that sum; competition would still reduce them to the lowest rate at which life was possible..."
(Ruskin, Unto this Last, 1860)​


Does the principle still not hold? (Note that back then what we broadly call today the "middle classes" were broadly referred to as the "lower classes". And of course the minimum standard of life acceptable back then did not encompass the expectations that advances in modern consumerism have engendered etc.)

So - is it not true that it is effectively employers who pay all tax through their having to inflate the wage they pay out to ensure a certain standard of living for the employee? Think through the implications of that.
I think globalisation impacts the argument in that companies can setup whereever they want in jurisdictions with different tax rates
 

farnaby

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Income tax increases hit the worker first; there is no obligation for the employer to adjust salaries accordingly; it is usually only when you change jobs that the market rate is adjusted based on up to date tax rates.

Seeing as the vast majority don't change jobs that often, it is rational for the employee to moan about having to pay for tax increases. Double whammy when incomes were cut and taxes raised during the crisis.

Not a whisper about adjusting salaries when taxes go down of course ;).
 

dalyp

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Very often (too often perhaps) this forum and numerous other Irish discussion forums are used to air grievances about the weight of taxation. But I was recently set wondering about this. Take the following observation, written over 150 years ago:


"... For instance, considerable agitation is often caused in the minds of the lower classes when they discover the share which they nominally, and to all appearance, actually, pay out of their wages in taxation (I believe thirty-five or forty per cent.). This sounds very grievous ; but in reality the labourer does not pay it, but his employer. If the workman had not to pay it, his wages would be less by just that sum; competition would still reduce them to the lowest rate at which life was possible..."
(Ruskin, Unto this Last, 1860)​


Does the principle still not hold? (Note that back then what we broadly call today the "middle classes" were broadly referred to as the "lower classes". And of course the minimum standard of life acceptable back then did not encompass the expectations that advances in modern consumerism have engendered etc.)

So - is it not true that it is effectively employers who pay all tax through their having to inflate the wage they pay out to ensure a certain standard of living for the employee? Think through the implications of that.
Hardly deep stuff is it, the rate of taxation is another expense which contributes to the over all cost of living for the employee which directly impacts the expected pay level the employer needs to reach to attract workers. What implications are you talking about that are not obvious?
 

Watcher2

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Typically (ideally) they create wealth by conceiving of a product, building it, and distributing it where it contributes to the welfare and quality of life of society. Then, the banking system matches that "wealth" created with an appropriate amount of money, which it does by creating loans or money against that real increase in wealth which is expected to be created in the future.

EDIT - As regards other contributions above, forget the payment devices and so on for just a minute, so we can get back to the first principles.
"They" being the workers. Companies cant do anything without them. But that was not the point I was making either. The point I was making, and hoping you would answer the question, was that the employers get their money from someone else (customers) much like the employees get their money/wages from the employer. Without customers, likely employees of other employers, the employer would have no profit, or even wages to pay to the employees.

But at its essence, its the employee that pays the taxes because its a tax on his labour which is expended to make the profit for the employer.
 

mr_anderson

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There's a really easy way of finding out the answer to this question.
Stop paying your tax and see who the revenue come after.
 

Trainwreck

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Very often (too often perhaps) this forum and numerous other Irish discussion forums are used to air grievances about the weight of taxation. But I was recently set wondering about this. Take the following observation, written over 150 years ago:


"... For instance, considerable agitation is often caused in the minds of the lower classes when they discover the share which they nominally, and to all appearance, actually, pay out of their wages in taxation (I believe thirty-five or forty per cent.). This sounds very grievous ; but in reality the labourer does not pay it, but his employer. If the workman had not to pay it, his wages would be less by just that sum; competition would still reduce them to the lowest rate at which life was possible..."
(Ruskin, Unto this Last, 1860)​


Does the principle still not hold? (Note that back then what we broadly call today the "middle classes" were broadly referred to as the "lower classes". And of course the minimum standard of life acceptable back then did not encompass the expectations that advances in modern consumerism have engendered etc.)

So - is it not true that it is effectively employers who pay all tax through their having to inflate the wage they pay out to ensure a certain standard of living for the employee? Think through the implications of that.
That is a 150 year old quote. It is wrong. Off the top of my head, that would require perfectly monopsonistic labour markets - a ludicrous proposition.


Income tax does introduce a "wedge", but it is not as this quote would describe. The employer is willing to pay the marginal product of labour. If the tax wedge is removed, the employer is willing to pay just as much (the gross wage=net+tax), outbidding other potential employers, who might try to "save the tax", for the best labour. Hence the wage does not fall to the previous net (because other employers would profitably steal your employees)



There is a supply-side effect as well, where rising net wages meet falling marginal utility - increasing supply and hence depressing gross wages as labour competition increases.


In effect there is a relatively complex interaction that will result in higher net wages, but likely lower gross wages (the actual outcome is dependent on specifics of relative elasticities) and also higher level of employment and labour market participation.




SHOCK HORROR - reducing tax increases employment and net wages , reduces labour costs (gross wages), and increases total incomes. FÚCK!
 
Last edited:

Novos

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The problem I have with tax is that all the money we earn makes it way to the government one way or another because the same money is taxed over and over until it does.
A crude example
You earn 40k
10K goes in tax to the Government.
For simplicity you spend your remaining 30k in one shop.
6k or 20% VAT goes to the government.
The shop pays the remaining 24k to one worker.
5k goes to the government in tax.
He/she spends the 19k in one shop and £3800 in VAT means the government money train continues to roll.
All the money ends up in one place, the government get it.
 

Watcher2

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The problem I have with tax is that all the money we earn makes it way to the government one way or another because the same money is taxed over and over until it does.
A crude example
You earn 40k
10K goes in tax to the Government.
For simplicity you spend your remaining 30k in one shop.
6k or 20% VAT goes to the government.
The shop pays the remaining 24k to one worker.
5k goes to the government in tax.
He/she spends the 19k in one shop and £3800 in VAT means the government money train continues to roll.
All the money ends up in one place, the government get it.
Its called "the Money Multiplier (MM)". The government also pays the money out to the civil and public services, to contractors, landlords, social welfare etc. It goes round and round. Its been a long time since I studied economics but for some reason the number 4 is in my head as regards the MM, in other words, a euro becomes 4 euro in the money multiplier by the changing of hands you describe above.
 

loaf

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SHOCK HORROR - reducing tax increases employment and net wages , reduces labour costs (gross wages), and increases total incomes. FÚCK!
The three post-war decades suggest otherwise: High tax, high growth, growing employment, growing real wages.

Since then, the massive lowering of taxes (both corporate and individual) has seen real wage growth slow significantly (or stagnate completely for most of America, for example).
 


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