Ralf Einert

THE WORLD SPIRIT - Part 2:

Studies of Economic Change

Step 2

An important goal of imposing taxes and duties on wages and income is the creation and maintenance of social structures which provide the infrastructure to produce goods and services. The social structures are therefore a production factor. Furthermore the national insurance which includes the health insurance, the pension fund, and the unemployment insurance minimises the risks of life and ensures the fundament of the social cohesion. And the social cohesion is necessary to maintain the social structures as production factor.

Therefore it is a social duty so provide social security above the poverty line. But a decreasing employment rate leads to the necessity for less and less people to sustain more and more people by paying more and more taxes and duties. This is why it is extremely difficult to keep the social cohesion functioning.

Looking at the limits it is obvious that an employment rate of 0% leads to a share of taxes and duties of 100%. Contrary enables the highest possible employment rate a substantial reduction of the share of taxes and duties. The share cannot reach 0% because the social structures and infrastructure have to be maintained anyway.

The public opinion published by the media is convinced that unemployment is the result of high taxes and duties resp. the payroll related costs. But the correct choice of problem solving measure is based on a correct correlation of cause and effect. They must not be mixed up:

Unemployment is not caused by high taxes and duties: High taxes and duties are caused by unemployment.

If it were true that taxes and duties causes unemployment we only would have to increase only taxes and duties. But this is wrong. Therefore we have to decrease unemployment by increasing the employment rate to reduce taxes and duties. Last but not least we come to the conclusion again to reduce the hours worked.

Part B of step 2 demonstrates the impact of the average share of taxes and duties on the wages and income in relation to the employment rate. We can conclude from the above mentioned relation that wages and income reaches the level of nothing if the employment rate reaches 0%. Contrary a high number of employed leads to a reduction of taxes and duties. Consequently the net income is going to increase substantially.