I think there's some funny accounting here... On Tue, 12 Nov 1996, Joseph M. Reagle Jr., for whom I have considerable respect and who ordinarily posts very sensible things but appears to have lent his account to someone else appeared to have written:
o TAXES THOUGHT EXPERIMENT
1) I generate $100 of productivity for my company
I will assume you measure productivity by "sales". Note also that it's debatable whether this $100 of sales is exactly "your" productivity. In some sense it's really the company's, ie a joint product of your labor, their capital, and the labor of other people in the production/sales chain: If you could do it alone, you would, so as to capture the full benefit yourself. That is why economists sometimes measure labor productivity by "salary" on the theory that the market accurately measures what your output is worth. Note also that the analysis that follows is not really affected by whether you meant "sales" or "my contribution to the sale".
2) Company is taxed %30, $70 left
No. Company is NOT taxed on gross sales. Corporate income tax does not work like sales tax. With some minor exceptions relating to pass-through rules, foreign sales, and some complex timing issues, corporate tax is ordinarily levied on NET PROFITS. Thus, the company first deducts all the "costs" it can identify, even if those were not necessarily involved in producing that (or any) sales. E.g. advertising, your salary, corporate junkets, rent, etc. And lets not forget corporate tax sheltering too...
3) Company pay shareholders and costs, $30 is left
Again, no. Shareholders come AFTER payroll and costs.
4) Company pays me
See above.
5) I pay 40% in taxes, so $18 left
I'm afraid you are conflating the MARGINAL rate (and when you consider federal, state and local taxes varies by state) with the AVERAGE rate. Here in FL. for example there is no state or local income tax. With tax sheltering, mortgage deductions etc. no one pays 40% -- the middle class pay a lower average rate, the upper class pay a much lower average rate.
6) With $18 I can buy a $16.82 object (%07 sales tax).
By now we are into science fiction.
Results: 1) I see $16.82 realization from $100 productivity increase. * Govt. gets $49.26 of my productivity, or nearly 3 times the amount I get.
Totally skewed, sorry. I don't know what the real numbers are, but the government gets *much* less than this. I'm sure the aggregate numbers can be found in the statistical abstract of the U.S. or the council of economic advisors' annual report to the president, neither of which happens to be in my office right now. A. Michael Froomkin | +1 (305) 284-4285; +1 (305) 284-6506 (fax) Associate Professor of Law | U. Miami School of Law | froomkin@law.miami.edu P.O. Box 248087 | http://www.law.miami.edu/~froomkin Coral Gables, FL 33124 USA | It's warm here.