Who pays taxes?

Many people say there is no need to cut the budget. There is no need to take those in need, poor officials will not feed their families and brave police officers will resign - and then who will protect us? These people claim that it is enough to raise taxes and turn to corruption. But who actually pays those taxes?

High taxes - what do they cause?
High taxes - what do they cause?

Well, good. I will not deal too much with the need in this article, for example the 6 officials at the Wine Fund who managed over 2009 million crowns in 80, I want to focus on that effect of "tax increases". I wonder who pays the taxes…

Business myth

As far as I remember, one of the first proposals of those who want to increase taxes and not cut was, in addition to the reintroduction of progressive income tax, also increase in corporate taxes. That is, to those "malicious capitalist enterprises."

But trying to raise corporate taxes is stupidity. An enterprise is nothing but entanglement of contracts. We can't go to a coffee café with a Škoda and talk to her about the situation on the car market or have an interview with ČEZ about energy.

Taxes are never paid by the companybut people, those who make up that tangle of contracts. This means raising taxes for "businesses" increase taxes for all people who are employed in the company.

What does it mean? First, it means that any increase in taxes pushes up unemployment.

The price of goods and services in the market is created by the conflict of supply and demand. If we impose taxes on offering companies, these companies can reflect this taxation in their prices, but not completely, but only to a limited extent - they are under the pressure of consumer preferences and competition. Taxation is thus reflected mainly in the company's costs. There may be two possible starting points: either I increase the price of my current employees, but I endanger the existence of the entire company; or - and this is a more likely option - I will keep the same prices, but reduce salaries or lay off someone.

High taxation can also make a business too expensive for a business owner - it turns out that his sacrificed opportunities would bring him more. He can do that lay off all your employees and go make a senior executive to another, larger company.

They paid the tax again especially ordinary employees by losing their jobs. In the longer term, however, the tax will be paid by all consumers. Why? Because like our entrepreneur, it could keep many other entrepreneurs who close their business. It will happen reduction of competition market and this will be reflected in either rising prices (not inflation!) or loss of innovation.

Potential competition does not work either, ie the competition of those who would enter the market in the event of higher profits, because profits will not increase - despite lower competition in the market. The loss of competition and the increase in prices are only the effect of the reduction in profits due to taxation - potential competition will not enter the market because profits will not really increase, they are maximally called to the original level.

However, even then, the original suppliers will not return to the market, as they would need higher sales than before the tax increase to make the same profit as before the tax increase. That's how it happens increasing the cost of entering the market.

The myth of gross wages

It doesn't matter if we call the tax insurance or a bribe - all that is a state-imposed payment is a de facto tax. After all, even such an income tax could be called "insurance against problems with the authorities in the event of non-payment."

Health and social "insurance" is thus a tax. It does not matter who collects and manages it, it is a mandatory payment by law, a payment given by the state. It's a tax.

So if we want to know how much we will pay in taxes, we must also count health and social taxes as a tax. Another thing that "obscures" the overall taxation by law is also the distribution of payments for social and health insurance between employees and employers, where the employer together pays another 34% to the employee's gross salary for social and health insurance. This payment is enforced by law, it is a tax with everything.

However, the division between employees and employers is confusing. He is downright false, because even though it is paid "by the eye" by the employer, the payment is always at the expense of the employee.

The employer does not care how much he pays on the gross wage, how much on the social wage and how much on the health care if he hires an employee. Entrepreneurs are primarily interested in how much the employee will cost him in total. The gross salary for the employer is by no means is not a useful indicator.

We must realize that a person who gets a job for 10 crowns gross is actually worth at least 000 crowns on the labor market. Note the difference between what an employee eventually gets and how much the employer pays: the employee receives approximately 8 crowns net, while the employer gives 900 crowns per employee.

The employer thus expects work for at least CZK 13, while the employee works for CZK 400. It is difference 4 crowns and it is from this difference that most disputes between employees and employers arise. While some (employees) complain that they receive too little for the work expected of them (they receive 8), employers complain that employees work too little to raise their wages or pay them at the current level. (in reality, he pays a salary of CZK 900).

Those taxes that are imposed on "employers" for employing, in fact it is not the employer who pays, but the employee. Simply because these payments "in excess of gross wages" increase the price of employees in the labor market and do so more difficult to find a job. At the same time, the motivation to work also decreases when an employee receives "such alms" for "such demanding work" and the employer also complains that "I am paid a fortune."

Another thing to note is progression of taxation. The higher your salary, the more you pay in tax, not only in absolute terms but also in proportion. Tax rebates are in absolute amounts. So if your gross salary is 20 crowns, you will take about 000 crowns net (only the taxpayer's discount is calculated), but the employer will pay 15 crowns for you in real terms. The difference is as much as 10 crowns.

While with a gross salary of 10 crowns, the employee finally won 67 % what the employer spent on him, with a gross salary of 20 crowns, that was only 59%. The difference between what the employer "spends" on the employee's salary and how much the employee earns grows to about 148 gross salaries, when the employee earns only 53% what the employer spends on him.

Of course, it is different for students, parents, people with disabilities, etc. This example is illustrative.

Payments in excess of the gross wage thus never come to the detriment of employers, because they only employ them if the employee "pays" himself - so it is not an additional cost for the employer. The one who In fact, he suffers an employee who is thus deprived of a significant portion of his salary.

Greedy managers

In the end, I kept progressive taxation. "Greedy managers" who have been drinking expensive wine and caviar all day long should help the poor people and, thanks to a higher tax, contribute more to the common state bag, shouldn't they?

I do not think so. Why?

Why start a business? The company is established because management costs (in the company) are lower than transaction costs, which every individual in the company would have to go through to find a supplier of labor, capital and more.

In other words, Mr Franta, who is well versed in construction, has two options:

Either work as a self-employed person, look for construction contracts, for those then look for workers on the market, someone who will rent him machines, a construction manager and so on, with each new job again and again.

Or he can start a business and hire people. He no longer has to run, constantly advertise, call acquaintances - his transaction costs will be significantly reduced. All you have to do is assign a job to an employee and it's done. Similarly, transaction costs for employees will be reduced.

However, he incurs other costs - he has to control his employees, he has to give them work and organize them. He will thus incur costs.

Mr. Franta can hire a manager to run the company instead. The salary of this manager is then the cost of running the business. If we artificially increase the company's management costs artificially, we will only achieve that the company will disappear, because the management costs will be too high.

In other words, Hundreds of people may lose their jobs due to one manager's tax increase. Again - it won't be the manager who pays the tax, but mainly employee or consumer.

The conclusion is simple - whether we introduce a tax on anything, in any form or call it exotic in any way, always the one who pays the tax is an ordinary consumer or an ordinary employee. Do we really want higher taxes?



  1. Hello,

    I would like to ask where I can find out how much my employer paid for taxes. Can I ask for a statement somewhere where it will be listed, how much was paid in total for taxes on my person?

    Thanks for answer Iveta

  2. I don't know how you have it in Slovakia, but:

    10 * 000 = 1,34 # 13 (gross salary) + 400 which "the employer pays" will give us 10, which is the tax base

    13 * 400 = 0,15 ## 2010% of the tax base is a tax advance without discounts (here 15)

    2010 - 2070 = (-60) ## 2070 CZK is a discount on the taxpayer. The resulting tax deposit is 0 (there is no bonus).

    10 * 000 = 0,89 ## 8% of social and 900% of health are deducted from 10 gross wages.

    8 900 - 0 = 8 900 ## The tax advance will also be deducted from our salary of 8. However, this is due to the tax rebate of 900, so the net salary is 0. However, for a gross salary of CZK 8, the tax advance is 900. The tax is as progressive as I write in the article, thanks to tax rebates.

  3. As an illustrative example of gross wages, net wages and the total price of labor paid for by an employer, it is foolish because the percentage tax is calculated in the same way so it is not possible for an employee with a gross wage of 10 to take home 000% and an employee with a gross wage of 67 20 eventually took home 000%. Everyone who has ever done a wage calculation must know this… .. at least in the Slovak Republic it works ……

  4. You are certainly quite right, Mr. Topoplář, but I abstracted from these costs in the article, it was about to show me the minimum, which is actually there for each employee, because the other costs are different depending on the job.

  5. Hello, I want to thank you for a nice and comprehensive article. I would just like to add that to those 13400 CZK it is necessary to add work aids, holidays, vacations and now also sick pay, which is paid by the employer. Sincerely, P.Topolář.

  6. Madqwerte, a company that has no profit has no cost? If he doesn't pay taxes, if he doesn't make a profit, he doesn't have that tax expense either.

    I have sales of 100 crowns. Costs (excluding tax and sacrificed opportunities) are 90 crowns. The tax needs to be 10%. From the profit of 10 crowns, I will pay 1 CZK as a tax. My profit is no longer 10 crowns, but 9 crowns. Is tax my expense? Of course it is.

    And otherwise, of course, that what reduces my profit is my economic expense. I have to sacrifice something, it's a cargo.

  7. economic profit and accounting profit is practically the same as the costs of the sacrificed opportunity, which is not related to taxes at all…
    I ask again, how can the tax increase be increased by the cost for a company that has no profit?
    not everything that reduces the resulting profit is a cost and it does not apply on the contrary, that only what reduces the profit, is a cost

  8. Noname, I tried to focus mainly on business taxation, etc. I wrote about excise duty in another article (on social benefits), but yes, I agree that it is a cost for the company.

    VAT is also the cost of the company, not the consumer, more precisely, although the law does not say that, economic theory is relentless - it is certain that part of VAT is the cost of the company. It is not entirely certain whether part of the VAT is also the cost of the buyer, it is rather product by product.


    Because price creates a clash of supply and demand. I write about this in the article in the section on corporate taxation.

    But otherwise yes, the marginal tax rate is relatively high in our country.

  9. You forget about excise taxes and VAT.
    I.e. not only does the employee get, for example, 60% of what the employer spends on him, but he still pays on average approx. 16% VAT and then excise taxes depending on how much they smoke, drink, drive. In addition, excise taxes become a cost for companies.
    In addition, of course, tolls (road tax), property taxes, etc.
    Of course, everything in any state must necessarily be paid for by the citizens. In the management of an effective state, it is a matter of minimizing the transfer of profits outside the Czech Republic, maximizing money flowing from abroad, and minimizing black employment. And most importantly, to minimize the costs of managing all this, where it is primarily protection against negative elements that do not exist in an ideal society (police + courts + legislature - protection against internal criminals; tax authorities - securing withdrawal from defaulters; military - protection against external risks …).

  10. Just the fact that it is a profit tax - that is, it reduces the resulting profit (profit without tax would certainly be greater) means that tax is a cost.

  11. Ad point 2 - yes, you are right about sick leave, I admit it.

    Ad point 1 - yes, taxes are always an economic cost. However, I recommend finding out what economic profit, economic cost and economic return are. This is not accounting, this is economics.

  12. 1. you are not right, taxes reduce profits… only what if the company has no profit? how do I increase her expenses? There is no zisk simple profit is from deducting the cost from the income, so the tax on profit can not increase the cost…
    2. again you are not right, changes in insurance, resp. Payment of sickness benefits made by the non-time government concerns 100% of companies, the employee does not know whether the sickness benefits are paid by the state or the company… and here the increase in costs occurs, in addition, it affects all companies, including those that have problems and no profit zisk the government will thus gain from companies 11 billion…

  13. Madqwerte, nonsense, taxes reduce economic profit, thus increasing costs. Any taxes. Conversely, changes in insurance are not always entirely at the expense of the employer, but rather the employee. But you would have to read the article and not just gossip here.

  14. nonsense, the tax on profits does not increase costs for companies - I increase, for example, changes in health insurance, which were made by the current government

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