Gross pay equates into the cost of goods and services for sale and delivery, and is what the employer must recover in order to remain in business. The goods and services must sell for at least the cost of producing them. The analogy that follows does not take into consideration profits which would make the inequity far larger. The laborer is paid at the wholesale level, and the goods and services produced, made available by the laborer, for the laborer, are priced for sale and delivery at the retail level.
There is not enough money in circulation to allow the producers of the goods and services (people) to buy them back, and is a reason for debt, bankruptcy and foreclosures. This is why you have to fight tooth and nail to get ahead, but in doing so, someone else loses.
It is taken into consideration here that all labor is pooled; meaning, you do what you do, I do what I do, and at the end of the day, we all do what we do for each other. In other words, I may help build homes and you may help build cars, but it is our collective labor effort that generates the goods and services (hereafter “assets”) that people desire.
“Governments and corporations exist to serve people although that seems to have been forgotten”.
Let’s say that the total amount paid last year by employers to all the workers in Canada, who produce the assets (do the work), was 100 billion dollars, measured as gross pay. The assets produced as a result must sell for at least 100 billion dollars because the employers have incurred an expense of that amount. In other words, if the employer incurred an expense of $ 1000.00 for labor contribution, it must pass that cost off into the assets which the same workers (labor pool) may purchase.
So here we are now, with 100 billion dollars worth of assets for sale. Now let’s see if the workers (labor pool) who did the actual work have the means to buy back the fruits of their own production/assets.
We have covered gross pay but what about net pay? Net pay is what the pay check indicates and what you may call take home pay. Take home pay is the after tax portion of the gross pay and is less than the gross pay that represents the minimum pre tax selling price, of the assets that people produce.
We used an income tax rate of 25% in these calculations.
Cost of the assets for sale as we covered above is 100 billion dollars, but the workers (labor pool) took home only 75 billion, due to the 25% income tax rate. Now you see we are all short the means to buy back the fruits of our own production. Remember, profit is not considered here so the actual inequity is far larger.
In Ontario we have a sales tax and goods and services tax that together equal 14%. So we add that 14% to the 100 billion making it so the worker (labor pool) needs 114 billion dollars to buy back the fruits of our collective production, assets, and yet only take home 75 billion. In other words, the labor pool is 39 billion short of having the ability to buy back the fruits of our production.
Ah, there is a solution to the shortfall: The bank will be happy to lend the 39 billion we are short, plus interest. The bank will lend the principal amount of 39 billion, and wants its interest of say 5% annually, which in this case would be 1.95 billion dollars.
So now the labor pool is 40.95 billion short of the means to buy back the fruits of our production. Remember there is no profit-taking considered here, and so the actual inequity is far larger.
Further, when the bank created and lent the principal amount in circulation to cover the initial shortfall of 39 billion, it did not create and lend the interest of 1.95 billion, which means the interest does not exist in circulation. It does, however, have to be paid. Now you know the reasons for debt, bankruptcy, foreclosures, seizure of property, and why you struggle to but may never get ahead. Now you know a reason why people are stressed, with health issues on the rise. We are trying to perform the impossible and only we can change ‘what currently is’, to a new way. If we do nothing, what legacy do we leave our children and future generations? We people are the producers of all goods and services, cars, homes, roads, buildings, appliances, etc., yet the corporations that exist in name only, and are incapable of producing anything but debt are reaping the benefits and rewards of our labor force.
Yes, some people do get ahead, but at the inevitable cost to others. Working harder is not the solution, for the harder you work, the higher the taxes, and that only contributes to the shortfalls and inequities. Higher wages equate into higher costs for goods and services, effectively stealing from one of your pockets to feed the other.
Now, once given those circumstances, the labor pool (people) that produced the assets, is liable to repay 40.95 billion to the bank, but there is only 39 billion in circulation. If we do not pay (and we cannot collectively), then the bank will have the assets/collateral seized, and the bank did not do any of the work.
The fact is, if we were of one body, responsible to pay the bank interest of only 1.95 billion, we could not, and the bank would foreclose on us all. Obviously the labor pool is not one such body, but you see now why there are inequities. One body or not, every paid worker is subject to the inequities of gross and net pay.
As it is today, what you know as money is borrowed into circulation (promise to pay you), except for the interest aspect. Interest on debt is not in circulation but must be paid back. How can we pay back the principal and interest, when only the principal is created and put back into circulation?
The numbers may change, but the math doesn’t lie. If this situation seems incurable, it only means that it is “curable from within."
Addendum : The High Cost Of Working For Money II