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15 June 2012

Simple Math

Why hiring a government employee does nothing to stimulate the economy.

We will assume that everyone mentioned is single and pays their full tax rate and takes the standard deduction for simplicity.

Let's say we have a government employee who makes $50,000 a year (roughly a GS-9 step 1).  Their taxable income is $44,050 and they are just into the 25% bracket and will end up paying $6,172.50 in taxes.  Because money is fungible that means that they are really costing the government $43,727.50 to pay them because their taxes return to the same pile that's paying them.

So, how many $50,000 jobs does it take before we've collected enough taxes to pay one government employee the same salary?  Simple math.  They pay $6,172.50 each, so $43,727.50 / $6,172.50 = 7.1 (rounded).

7.1 * $50,000 = $355,022.28 in private sector income to pay enough straight taxes to make one government employee's SALARY.

Just for laughs, you have to be making $238,198.49 for a single person to be paying enough taxes to pay for one $50,000 government salary.

None of this counts the taxes the employer is paying nor the overhead costs of the government employee.  The rule of thumb is that it costs three times as much as the salary for every employee.  So we'd need to triple the number of workers to support each government wage.  And the businesses hiring our tax payers need to have triple their salaries to pay THEIR overhead too.

So to pay one government employee it takes $3,195,200.49 in revenue that will go entirely to salary.  In reality it's going to be much more since a business will also need to buy non-overhead items and will expect to make a profit.

Pretty staggering, huh?

EDIT:

How many 35 hour a week minimum wage ($7.67/hr) workers does it take to pay one $50k a year government salary?  50.261 straight up, 150.78 to account for overhead.

That's a $13,959.40 annual income, $8,009.40 taxable; $800.94 paid in taxes.

That's a lot of people flipping burgers, isn't it?

EDIT AGAIN:

Not a penny of these taxes mentioned is going towards buying anything, like paving roads, delivering mail, arming troops or launching ships.


2 comments:

  1. Want to cloud it up more? Take into acount all the government benefits paid to the minimum wage worker, like food stamps, subsidized housing and childcare, etc etc etc. At the end of that pile, I submit that no quantity of minimum wage jobs will be sufficent to page waiges of even one government employee.

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  2. I'll submit something even darker. The $238,198.49 income is not paying the full $43,727.50 because they can afford to shelter their income from taxation through lawyers and accountants. That means it will take more than one to pay for that gov't employee's salary.

    Out minimum wage earner tends to fall into two categories. He's either paying the whole $800.94 a year, no relief; or he's not paying any taxes at all and receiving all sorts of hand-outs. So 151 tax paying min-wagers is correct, the trick is to find one.

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