George Bush’s secretary of labor nominee, Linda Chavez, withdrew her nomination under charges of hiring a worker and not paying minimum wages plus applicable taxes. This was just character assassination by those who didn’t want to see her confirmed because of her political views. Chavez simply provided Marta Mercado shelter and other assistance, and when Linda was out of town, Mercado might feed the dogs and water the yard.
This isn’t the first time that such a charge landed a political appointee in hot water. Zoe Baird, President Clinton’s first attorney general nominee, was accused of not paying her domestic servants the minimum wage and not paying their Social Security taxes. Chavez had employed housekeepers and nannies – and paid all applicable taxes. The charges leveled against Chavez raise issues of far greater importance than her confirmation.
Consider this. I’m willing to work for you for $8 an hour. The value you place upon what I can do for you is $8 an hour. Thus, you’re willing to hire me and I’m willing to work for you.
But not so quick. Suppose the government says you must pay Social Security taxes of $2 for each hour you hire me. That means it now costs you $10 an hour to hire me. Will you hire me? The value of what I can do for you is still worth $8 an hour, but I now cost you $10 an hour. You’d probably see this as a losing economic proposition and not hire me. That doesn’t mean that you won’t hire someone; it just won’t be me, unless you’re feeling charitable. You’ll hire someone who can produce $10 worth of value each hour.
Economists call this phenomenon the excess burden of taxation. Certain taxes can produce losses over and above what the government gets in revenue. They create net losses to society, known as “dead-weight” losses associated with exchanges foregone as a result of the taxes. In my example, I lose employment at $8 an hour that I could have had were it not for the $2 an hour Social Security tax.
Here’s a compassion question. Who is more compassionate: the person who hires me, pays me $8 an hour and forgets about the Social Security tax, or the person who says, “Sorry, Williams, it’s going to cost me $10 to hire you, and you don’t have the skills necessary to be able to produce $10 an hour’s worth of value, so forget it.”?
You might argue that as compassionate as it might be, hiring me and not paying Social Security taxes is breaking the law. That means we’re on the horns of a dilemma: whether to break the law and help a person or obey the law and hurt a person.
Social Security is a form of government-mandated wages and has unemployment effects. Instead of the government telling you that you had to pay $2 an hour in Social Security taxes, it could have told you that if you hire me I must be paid a minimum wage of $10 an hour. You wouldn’t hire me for the same reason: the value of my hourly output is $8 but it’d cost you $10 to hire me. The government might have mandated that you pay me $2 an hour’s worth of medical insurance benefits. Again, you wouldn’t hire me since it costs you $10 to hire me while the value of my hourly output is only $8. Of course, Congress might have legislated that I have greater skills, but miracles should be left up to God.
So who’s more compassionate: Those who obey laws or those who disobey? My answer is it all depends on what the law is.