Economics in One Paragraph

Given the overhead for sales taxes, income taxes, etc etc, it takes about 2 hours for me to earn enough to buy one hour of the time of labor from someone who makes the same salary as me.

Let’s assume someone makes $20 / hr. Let’s assume that he works for someone who makes something I want. It costs $20 for parts, overhead of the facilities, tools, etc. It takes 1 hour of the worker’s time. So they have to pay the worker $21.60 to cover their share of the employment tax. Adding in 8.5% tax on the 41.60 gives a total price you would have to pay of $45.14 for this item. How much does the worker take home? Using number from my actual check stubs, he loses 19% to federal income tax, 7.65% to his half of the employment tax, and 7.4% to state income tax, so the worker takes home $13.19. So the worker has to work for two hours to be able to buy back his original one hour of labor ($45.14 - $20 (materials/overhead) = $25.14 just under $26.38).

Note that I’ve assumed taxes make no contribution to the cost of the raw materials and overhead. If these were included, the worker would be losing even more to the government.

If half of my labor goes to the government, do I get half of what I use from the government? Not even close.

(Title inspired by Henry Hazlitt’s Economics in One Lesson)