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Tax Favors for Government Employees?

Privileges for Some or Rights for All?

by Fred E. Foldvary

There should be no tax favors for the employees of governments. Tax breaks for “public service” amounts to a tax-free increase in their wages, which does not show up in the government’s budget. It is not just sneaky and unfair; it implements a political bias for government and against private enterprise.

In his “State of the Union” address, President Obama advocated debt forgiveness for students who obtain loans and then spend ten years as government employees. This is an expansion of debt cancellation programs that already exist. The College Cost Reduction Act, implemented in 2009, but enacted under President Bush, provides that loans backed by federal guarantees are forgiven after 10 years of public service in government as well as in nonprofit organizations. That program does not include private loans.

If the citizens wish to raise the wages of government employees, they should just do this by raising their money wage, rather than doing this implicitly with tax-free debt cancellations. But many government employees are already overpaid, as they not only get equal or better money wages than those in private enterprise, they often get early retirement and pensions almost the size of their salaries. Many states such as California have chronic large budget deficits because of the high cost of government employees.

What is superior about government work that entitles employees of the state special favors? Are they better people? Is government service intrinsically better than private-sector service? The term “public service” implies that government workers serve the public whereas those in private industry serve just themselves.

The confusion here is the term “public,” which means either people in a community or else government. The public sector is the governmental part of the economy. But “open to the public” means open to people in general. So, does “public service’ mean service to the public, or does it mean governmental service? It is a “weasel word,” as economist Friedrich Hayek put it, that uses one meaning to imply another.

“Tax breaks for governmental employees” does not sound as good as “debt forgiveness for public service.” But people who work in private industry also serve the public. Adam Smith explained that in making bread to earn a living, the baker serves the public by providing it with bread. A teacher in a private school serves the public just as much as a teacher in a governmental school. Why should the governmental teacher get his loan erased while the private school teacher with no higher wage have to keep paying the interest and pay off the principal?

Governmental workers do not have halos on their heads. They are not gods who merit special privileges. The United States of America is a republic, and our Constitution prohibits granting privileges to nobility. Government service should not be a royal aristocracy. It is bad enough that government imposes restrictions and taxes; those workers doing that should also have extra privileges?

The law should abolish existing debt forgiveness for those in government or nonprofit organizations, and treat every worker equally. The wage should honestly be put just into their money salary, for all to see, and any debt forgiveness should not discriminate by a category of employer.

Equal rights for all, privileges for none! That should be our motto. President Obama, tear down that royalist wall!

This article first appeared in the Progress Report, www.progress.org. Reprinted with permission.

Dr. Fred Foldvary teaches economics at Santa Clara University and is the author of several books: The Soul of Liberty, Public Goods and Private Communities, and the Dictionary of Free-Market Economics.

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Comments

Sometimes the government acts as an employer, and should have a right to, in competing for top talent. It would not be the first employer to pay new hire's student loans. Indeed, with rising college costs, the practice of paying college for a commitment of time is inevitable in the entire economy.

As to government workers being overpaid, clearly the perception is there. It depends on the job. Office staff were considered overpaid, although most of these positions have been contracted to temp firms - so now the owners get what would have been paid in benefits to staff while the workers get shafted - a solution which is neither "free liberal" nor libertarian. Indeed, such circumstances prove my oft repeated points that the labor market is rife with economic rent. On the other side, executives are underpaid in the federal service. Supervisors who would make $150K in the private sector make $100K in the federal service. CEOs who would make millions in the private sector make between $200K and $400K.

In the middle, government employees are considered underpaid on an hourly wage basis, if only because they still work 8 hours when similar jobs in the private sector require only 7 hour days. This skews the figures, even if the take home pay is similar.

# posted at by Michael Bindner

OH, by the way, when the government forgives student loans, it is considered taxable income (at least in the current program).

# posted at by Michael Bindner

If an employer pays an employee's student loans, an employee who did not have loans is in effect getting a lower wage. Is this a good business practice? If I was a job seeker with no student loan, I would prefer an employer which does not pay the loans.

# posted at by Fred Foldvary