On one particular day in late April, Americans will start working for themselves instead of federal, state and local government. That’s when we’ll celebrate “Tax Freedom Day,” the last day the average American would have to work full-time to pay his or her total tax bill if it was front-loaded from the start of the year.

Tax Freedom Day is announced each year by the Washington, D.C.-based Tax Foundation, which first began figuring it more than a quarter century ago. Last year, the date was April 27, actually two days earlier than it was in 2001. Created to raise awareness among Americans about the burgeoning cost of government, it’s clear that something more is needed to make the point because as recently as 1984 the date was April 15. It’s time we let people know in ways they can’t ignore that government is costing them far more than they ever imagined.

As taxes rise, more and more people begin questioning what they’re getting for their hard-earned money. The problem is, many taxes are not readily apparent to those who pay them.

Consider how public debate might change if employers told their workers about the costs of government that come right out of their paychecks? Not just the obvious that show up on their pay stubs now, like federal, state and local income taxes and the employee’s share of Social Security and Medicare, but some of the not-so-obvious costs too. Enhance the pay stub to inform the worker — that’s the idea behind an innovative concept that’s catching on around the country. It’s called the Right to Know Payroll Form.

The form extends most current payroll accounting beyond the standard withholdings or deductions to include the employer’s share of certain taxes, the expense of having a paid staff to compute and administer payroll taxes for the government, and the cost of other employment-related mandates. Its creator, Joseph Overton of the Mackinac Center for Public Policy in Michigan, says that “Only those with something to hide would want American workers and voters to be kept in the dark about what they’re really paying for government or anything else.”

The Right to Know Payroll Form starts with a calculation of “Estimated Payroll Allocation” — the sum of those taxes and other costs imposed specifically on the employment relationship. Included are the company’s expenses for mandated programs from the Americans With Disabilities Act to the Family and Medical Leave Act to affirmative action, which are estimated and spread across the existing workforce, prorated for each pay period. The effect is to show each employee that his boss pays out quite a bit before he even gets to the “Gross Pay” figure on the traditional pay stub.

To illustrate, here’s information from a recent pay stub of a real, live worker at one of a growing number of private companies that have voluntarily adopted the form, or their own stylized version of it.

1.  ESTIMATED PAYROLL ALLOCATION:

 

$3,012.04

 

 

 

2.  Government Cost:

Tax Administration

$6.90

3.  Government Cost:

Mandated Benefits

$4.14

4.  Government Tax:

Worker’s Compensation

$19.32

5.  Government Tax:

Unemployment Insurance

$24.84

6.  Government Tax:

Employer’s Share of Social Security

$159.21

7.  Government Tax:

Employer’s Share of Medicare

$37.23

 

 

 

8.  GROSS PAY:

 

$2,760.40

 

 

 

9.  Government Tax:

Federal Income Tax

$288.32

10. Government Tax:

State Income Tax

$95.79

11. Government Tax:

City Income Tax

$27.60

12. Government Tax:

Employee’s Share of Social Security

$159.21

13. Government Tax:

Employee’s Share of Medicare

$37.23

 

 

 

14. NET PAY:

 

$2,152.25

This employee is now much better informed. Before his employer adopted the Right to Know Payroll Form, when asked how much he pays for government, he used to simply add up #9 through #13 and arrive at a response of “$608.15.” Now when he’s asked that same question, knowing that every payroll expense comes out of whatever pool of revenue the business has to pay its workers with, he includes the sum of #2 through #7 and responds this way: “$859.79, and I’m not sure I’m getting my money’s worth.

Note the recommended usage of the terms Government Tax and Government Cost. No one should think these things are either voluntary or from the tooth fairy.

The Right to Know Payroll Form is adaptable to any workplace. Some businesses may want to include additional line items not mentioned here. The Engler administration in Michigan implemented its own variation of the form in 1996 for most of its 60,000 state employees, and included additional information about health and pension benefits negotiated by the public employee unions. More than a thousand companies have contacted the Mackinac Center for Public Policy requesting information about implementing the form.

Information like this helps workers understand the constraints employers face when seeking to create jobs, increase pay, and compete effectively in a global economy. It shatters the myth that taxes and mandates can be placed on employers without affecting the workers themselves. It encourages awareness of employment-related public policy and how it affects jobs and wages. And it may even help the cause of liberty to the extent it encourages each worker to ask, “Do I really want or need this much government?”

The full disclosure concept embodied in the Right to Know Payroll Form has even broader applications. What if every filling station posted its price alongside a breakdown of all the taxes that are paid from the oil well to the gas pump? Consumers would see that of the $1.50 they just paid for a gallon of gasoline, at least 70 cents goes to government (essentially, to people who wouldn’t know how to drill a well if their very lives depended on it). It might put a new light on the phrase, “windfall profits.”

Haven’t we all heard every increase in Social Security benefits defended with the retort, “But I paid in!”? That sentiment is expressed even by those who received back, with interest, their entire lifetime tax contributions to Social Security in their first three years of retirement. Now, perhaps a decade later, they are collecting benefits paid for by other workers and still they cry, “But I paid in!” If every Social Security check stub had two simple numbers on it — how much the individual paid in and how much he had received to date — a few recipients might stake their claim on other citizens with a little less enthusiasm.

If those who favor ever bigger government really believe their prescriptions will cure society’s problems, they should have no objection to informing taxpayers about the full cost, but don’t count on it. Tax Freedom Day is later today than it was a decade or so ago more because of what Americans don’t know than because of what they do.

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Lawrence W. Reed is president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan.

More information on the Right to Know Payroll Form is available at http://www.mackinac.org/17