Joe Legal works in construction, has a Social Security Number and makes $25.00 per hour with taxes deducted.
Jose Illegal also works in construction, has NO Social Security Number, and gets paid $15.00 cash 'under the table.'
Ready? Now pay attention..
Very informative economic analysis. Now lets look at the rest of the picture.
Joe Legal gets paid $52,000 a year. In addition, his employer must pay vacation, unemployment comp, workmans comp and FICA which could easily exceed $10,400 a year bring his total cost up to $62,400. The current economic conditions do not permit the contractor to obtain projects at this wage rate and so must reduce his labor force or reduce the number of hours that are being worked. This makes the union very unhappy and the contractor suddenly has union problems. In many cases, he cannot compete at all and must close his doors.
Jose gets paid $31,231 a year without vacation, unemployment comp, workmans comp and FICA. Total cost to employer is $31,231. This lower wage cost allows his employer to successfully bid on projects and maintain a full work force and (god forbid) perhaps even make a profit with which to expand and hire more workers.
Jose now has full and steady employment and has received benefits equal to about $19,200 from the government in addition to what his employer pays him.
Joe must pay taxes and union dues on what he earns. The government has levied taxes on Joe's earnings of about $20,769, or about the same as the government has given to Jose. Joe's disposable income is much less than Jose; Jose can put much more money into consumer purchases which drive the economy.
If Jose did not exist, Joe's employer could still not obtain construction projects at the prevailing labor rate and might go out of business, Joe might work reduced hours or be laid off, and the government would not obtain the $20,769 donation which is necessary to squander wherever it might choose. All three are suffering.
But if Jose shows up for work, Jose is happy, his employer is happy, and Joe and the government are suffering. The government can simply borrow more money to maintain their expensive squandering habits. But Joe is screwed.
Now if Joe agrees to work for the same wage as Jose, he will have a steady job, more disposable income, his employer will be happy and only the government will get screwed. Of course, Joe will not get a vacation, no social security when he retires, might have trouble getting a mortage or a car loan and get beat up by his former union buddies.
The government will initially raise taxes to replace lost income. But taxes are paid out of profits and neither Joe, Jose nor their employer are making any money since all are out of work and now the government has no income to squander. The next step is for the government to tax assets instead of income. Joe's boat, lake cottage, and his home will face increased taxes called personal property taxes. Joe's employer will find increased taxes on his yacht, his Porsche, seaside condo and stock portfolio.
Jose will pick up his accumulated assets and skate to Mexico where he will live like a Prince for a few years. Then the jealous locals, too lazy to work in the US will rob him blind in a fit of envy and revenge.
The government will eventually even find it difficult to borrow more money. To pay off the existing massive national debt, inflationary policies will be installed to devalue the currency and make debt repayment possible. The valuless dollar will not have the purchasing power necessary to buy imported manufactured goods. And since the US no longer is capable of manufacturing any product whatsoever (sporting events, video games and iPads still sell like hotcakes), we will gradually do what every former great power before us has done.
Sink into the twilight of obscurity and neglect.
But wait, there is more.
Sensing that the value of US assets have sunk to incredibly low prices in huge numbers, none of which can be sold because mortgage funds are not available, (these assets are available at slightly more than back taxes due) the Chinese government begins to purchase US properties. And then the Arabs and Jews swoop in to pick over the bones and snap up remaining parcels at fire sale prices.
Who does Joe work for now?
Joe and Jose both work for $15 per hour with very limited government benefits and greatly reduced taxes. The contractor can obtain competively profitable work at reduced prices, throws the union out, and keeps the doors open with full employment. The government skimps and gets by with limited taxes adequate only to run minimal government services without social safety net largesse. Everyone lives within their means and productive capacity,and we can once again compete with the rest of the world.
Always be careful what you wish for... you may get it.
