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Government employees' salaries are paid for by taxes levied by the government on the labour income of employees among other. Why do governments not simply pay their own employees tax-free salaries?

I appreciate that taxing government employees has redistributive implications between different levels of governments. In practice it often means that local governments need to pay their employees higher gross salaries, which are then taxed by higher levels of government. But I doubt that this form of redistribution is the reason why government employees' income would be taxed in the first place.

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    Which country are you asking this about? The laws and reasonings behind this is likely to be different depending on the country and situation for the employee. For example in America depending on where in the world they are working (Think war/conflict zone) an employee might or might not have to pay income taxes. Not to mention there are places that don't have income taxes at all.
    – Joe W
    Nov 10, 2022 at 16:30
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    @JoeW all US citizens have to declare and pay taxes on their worldwide income, and pay of US government employees is not eligible for the foreign earned income exemption.
    – phoog
    Nov 10, 2022 at 17:49
  • @phoog That isn't what I was referring to here as at least for the military if you are deployed to a war/conflict zone all your income is tax free at both the federal and state level. From what I understand that applies to all federal employees but I can't confirm that. Why this can be critical is that even a large bonus such as reenlistment will be completely tax free even if it is paid over several years if it is gotten in a war/conflict zone.
    – Joe W
    Nov 10, 2022 at 17:52
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    This question can be effectively answer by the legal adage.. we are all equal under the law.
    – Neil Meyer
    Nov 10, 2022 at 18:42
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    governments pay their own employees tax-free salaries? - Someone get me a red hat because I don't care whose side I have to be on to say FTS.
    – Mazura
    Nov 11, 2022 at 4:31

5 Answers 5

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Easier for everybody

For the government

Taxes are complex. It is not only how much the employee gets from the government. It is also:

  • other income sources
  • other income sources from family members (which might or might not be government employees)
  • deductions

To do that, you would need to create a new tax system (that needs to handle more complicated issues like mixed incomes) when you already have a "working" one.

Easier for the employees
  • Comparing offers from government and not government jobs is easier.
  • They do not need to rely on specialized, more complicated, tax assessors/programs.
Easier for the public

A complex system makes it easy for loopholes to appear. Even if they are not widely exploited, loopholes that favour public employees are likely to create resentment among the public.

And, why would you do otherwise?

If the execution is perfect (everybody ends paying up the same that with the current system), there is no benefit at all.

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  • Counter point is that income from government sources can be listed as non taxable as there are already limits on what gets taxed and how much based on the source.
    – Joe W
    Nov 10, 2022 at 17:56
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    You could add government-owned companies organized under corporate law, companies only partially owned by the government or privatized companies formerly in government posession to the list of complexities to handle.
    – ccprog
    Nov 10, 2022 at 17:58
  • Otherwise, there are people who are basically tax exempt, who are already having their job's existence itself in question. "Easier for the public" to swallow (big government).
    – Mazura
    Nov 11, 2022 at 4:25
  • @JoeW: Those with substantial non-governmental income would then benefit disproportionately from gov't employment in a graduated tax system. If income above $100K is taxed at 30%, and income below at 10%, and I earn $100K per year from passive investments, then working a gov't job for $90K vs. an "equivalent" $100K non-gov't job, then my entire $100K investment income is taxed at 10% (net after-tax for combined income is $180K) vs. non-gov't net of $160K.
    – ShadowRanger
    Nov 11, 2022 at 15:41
  • @ShadowRanger Not sure I understand your point as I was simply stating there are already sources of income that do not count towards income taxes. I was not making any sort of point about how it would change the income tax burden on people who would get government income excluded from taxes. And please don't use hypothetical values for tax brackets as that can just provide confusion to the topic at hand.
    – Joe W
    Nov 11, 2022 at 15:52
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Taxes are more than the money for government

Taxes are not simply an instrument for government to get money. It's also an important instrument of welfare policy. Taxes differ depending not only on income, but on the social situation of the tax payer, like their marital status, the amount of children and the money spent on their education etc.

If you'd free government employees from taxes, you'd have to wage the differently depending on eg. the amount of children, you'd have to apply other tax rates from their additional income (such as dividends) etc. You'd create a lot of complications, each of that would likely be a big political issue to discuss. It's quite pragmatical to have one tax policy and discuss it in one place.

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The idea may also be that even though you might work for the government, you still will use or benefit from government services. A government employee will only do one specialized job at a time. An officer in the military is not doing remotely the same work as an accident investigator in the Department of Transportation and both those people are not working prosecuting criminals in the department of justice. Depending on how local taxes are funded, there are entire regions of the country that would be cash strapped if they could not tax government employees (For example, in the United States, a vast majority of federal government workers live in Maryland and Virginia, and those states would be out a lot in taxes.

It's the same principle as asking "Why should a childless couple pay the same tax for the school system? They aren't getting anything from it as the couple that has 10 kids!" Just because you aren't benefitted from a government service directly doesn't mean you don't have a benefit (One of those kids in school now is going to be the nurse helping you live comfortably in your retirement home, and he or she is getting that education right now in a public school.).

I'm all for paying as little taxes as possible, but that doesn't betray the understanding that if a large swarth is exempt because of the income earning job they have, stuff that is a benefit to me does not get funding.

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  • It can't even trickle down if the pipe isn't on at all, +1.
    – Mazura
    Nov 11, 2022 at 4:26
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    This may be a reasonable answer, but it only answers non-federal taxes and I read the question as only applying to federal taxes.
    – fectin
    Nov 11, 2022 at 19:46
  • "Just because you aren't benefitted from a government service directly doesn't mean you don't have a benefit (One of those kids in school now is going to be the nurse helping you live comfortably in your retirement home, and he or she is getting that education right now in a public school.)." Or more obviously, one of those kids in school used to be you. Public education is a service to students, not to their parents.
    – kaya3
    Nov 11, 2022 at 21:13
  • High school is daycare for teenagers. What parent thinks not having to babysit their own children for at least six hours a day is a bad thing? Didn't the last three years make that painfully obvious? It takes a village.
    – Mazura
    Nov 12, 2022 at 3:49
  • High school is actually a place where children are kept busy until they are of the legal age where there labour could be used in a way that does not contradict the Berne convention. In it no ways aims to provide any skills or teach anything worthwhile. It is simply something we do to a segment of society we have no practical use for.
    – Neil Meyer
    Nov 12, 2022 at 23:45
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If government employees didn't pay taxes, they wouldn't be able to get tax benefits from things like donating to charity.

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  • But it could be argued that such tax benefits are just a way to encourage private money flowing towards public causes, without this being an explicit subsidy. If it's government money going to the charities via employee paychecks, it's kind of missing the point... the government could as well just give money to the charities directly.
    – leftaroundabout
    Nov 11, 2022 at 16:29
  • @leftaroundabout The government could give money to charity instead of people giving their own money (including people employed by the government giving their own money), but then we wouldn't call those things charities; we would call them public services. Depending on political ideology, one may well prefer that some things are administered by the third sector rather than the public sector, for reasons such as preferring a smaller government, preferring greater individual choice about which good causes are funded, or preferring the direction of a charity not to be controlled by legislators.
    – kaya3
    Nov 11, 2022 at 21:08
  • Besides, charitable donations aren't the only thing that is tax deductible; many other things are, such as pension contributions, work-related personal expenses (e.g. the cost of commuting, or equipment needed for work), or interest payments on home mortgages in the some countries. If public sector employees didn't pay income tax then it would be more complex to treat them equivalently in those matters.
    – kaya3
    Nov 11, 2022 at 21:10
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In most countries in the world the government is the biggest employer. It would hurt the government's ability to generate income pretty hard if the stopped taxing the income of the biggest employer's employees. Depending on just how big the public sector is in the country it could probably be easier just to scrap the concept of payroll tax altogether if a country wanted to do this.

There is also the fact that people who work for the government still enjoy many of the service that local and national government provide and should still pay there fair share to ensure the continued operation of these services.

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  • This answer doesn't make sense. Gov't employee taxes are paid by tax money, broadly speaking. Not taxing them may create problems, but loss of revenue would not be one of them.
    – vidarlo
    Nov 13, 2022 at 16:44

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