EMPLOYERS’ BURDEN, INTRODUCTION
The numbers at the foot are the total salaries negotiated when you take on a job. The employer has to pay more than that because he has to pay a surcharge called National Insurance of 13.8%. The mauve columns show the rate of tax applied to the remainder that the worker actually enjoys, after Income Tax, more National Insurance, and Indirect Taxes included in his purchases.
The yellow columns are the result of the same calculations for Self-Employed persons, who pay lower rates of National Insurance. However, remember they are responsible for their own Pension contributions.
The Indirect taxes included are derived from Government Statistics which show that the lower paid pay a higher proportion of their take home pay than do the higher paid, thus reversing some of the effects of lower Income tax rates.
The tax rates and detailed calculations are on the attached sheets.
Another way of looking at it follows;-
What this chart shows is the constituent parts of the cost of wages to an employer. For any given gross pay shown on the left, 100% is the employers’ cost including Employers National Insurance contributions in purple. Indirect taxes are shown in green, direct taxes, PAYE and Employees NIC in orange. The blue part is what is left to the employee to spend, excluding VAT and other indirect taxes, which we have called “reward for work”, ie take-home-pay less indirect taxes.
A particular aspect that is mostly forgotten is that Indirect Taxes impact more heavily on the poor. The Office for National Statistics publish an occasional table which shows that the lowest quintile of earners pay 31% of take-home-pay in indirect taxes, while the top quintile only pay 13%. As the chart shows, this partly counteracts the lower Income Tax and NIC suffered by the lower paid group.
The overall effect is to show that of the total cost to the employer, at least half is taken in tax. Or, perhaps, the cost of wages is double the actual reward for work enjoyed by the employees.
If the Chancellor was to promote a policy of doubling the cost of wages by the imposition of taxes, he would presumably expect certain thing to happen as a result!
Here are some suggestions as to the possible effects of this policy:
1. A sharp distinction of the view of wages from the points of view of employees and employers.
2. A bias against labour intensive industries.
3. A constant impulse to replace people by machines.
4. Unemployment as a constant factor in the economy.
5. The effect of taxation at the margin, leading to more tax required to mitigate the effects.
6. In the cycle of production, employment based taxation rolls up until paid by the final consumer. His gross pay has to be sufficient to pay the taxes and leave him enough to live on.
7. Government expenditure is mostly wages, and is thus doubled under the same rules.
8. In order to cover the cost, an employee has to be able to add value to an amount twice what he needs to live on. Those who cannot meet this criteria will find their jobs at risk.
Is it any surprise to find that these things have actually happened?
We can still say the tax on wages is 100%!