Thursday, February 23, 2012

In defence of high private sector salaries

A quick thought amid all the kerfuffle about high private sector salaries. Working in the public sector, I like it when private sector people are paid insanely high salaries. The marginal rate of taxation is over fifty percent, which means that more of the money ends up going towards the Treasury and onwards to pay my salary (and everyone else's) than actually ends up in the employee's pocket. Somehow the public sector unions have it in their heads that this is bad for their members: whereas it is plainly the reverse, because the highly paid pay the taxes which fund our salaries. In fact, it's in the interest of public sector workers to see private sector inequality rise, since this would increase the overall level of income taxation paid for any given overall quantum of remuneration.

The flip-side of this, of course, is that one way to shrink the State may be to encourage, in as State-free a way as possible, less inequality in market incomes. It's odd to think that quite possibly, these two issues have shaken out on the 'wrong' sides of the debate in quite the way they have.


bilbaoboy said...


This is one I have never been able to understand.

It is on a par with business bashing on principle.

Where the hell do taxes come from?

Are people really so unaware that they think if we do away with trade, wealth creation and earnings we will be better off?

We will all be very, very poor together (but more equally so, I suppose whoch will be a great satisfaction to some).

And I am not arguing in favour or against the rates of tax. Simply that the tax spenders want to crush the chicken (or was it goose?)that lays their particular golden egg.

Hal said...

It is possible to have less inequality and more wealth creation and earnings. You assume that if wages are distributed more evenly, that will result in lower tax, when in fact people will just move up tax brackets in a progressive system.

The financial crisis has shown the way that high pay and bonuses and lack of regulation in the banking sector has destabilised the economy. They are paid the bonuses regardless, and losses are socialised by the state.

The golden eggs are the people who actually do the work for the company. This is recognised in partnerships such as John Lewis, where everyone gets a bonus depending on profitability.

Hal said...

... Of course, that does not even mention the tax-avoidance schemes that the incredibly rich use to avoid paying taxes.

Regular earners can't afford accountants to advise on tax avoidance schemes, so less inequality would likely raise tax revenues.