innies and outies
what's the sales tax on your labor? interesting question. when a vendor sells a good, they tack on sales tax. in many places anyway. here in ca, it's some 8% or so. i buy a $100 rake. i give the vendor $108 dollars. they keep $100 and they give $8 to the government. that's an outer tax. when a worker sells his labor to his company, things are a bit complicated. there's an outer tax for social security and medicare. it's about 7%. you don't see this tax on your pay stub. it's a hidden tax. you also pay income tax. the company generally withholds it. but we think of it as your money being turned over to the government. at the end of the fiscal year you figure out how much you actually owe. at which point you and the government square up. this tax varies widely. but 30% is reasonable. and makes nice round numbers for this point. this is an inner tax. ie your wages (the cost of the good (your labor)) includes the taxes that have to be paid. i think we do this for psychological reasons. you buy the cheapest goods. so it makes sense to add on the tax. your time is valuable. you want to charge as much as possible for it. so your wage includes the taxes. it's not hard to convert between inner and outer taxes. your 30% inner tax is the same as a 43% outer tax. now tack on that 7% for social security. the tax on your labor is 50%. imagine if paychecks worked this way. here's my bill for one month of service: $10k plus $5k taxes. ouch! i'm thinking if the sale of labor was treated the same way as the sale of a good we'd get that out of control income tax under control in a hurry.