NEWSROOM
Commentary Articles
In The News
News Releases
Experts



Media Inquiries

Kim Cloidt
Director of Marketing & Communications
(510) 632-1366 x116
(202) 725-7722 (cell)
Send Email

Robert Ade
Communications Manager
(510) 632-1366 x114
Send Email


Subscribe



Commentary
Facebook Facebook Facebook Facebook

Contribute
Your participation will advance liberty. Join us as an Independent Institute member.



Contact Us
The Independent Institute
100 Swan Way
Oakland, CA 94621-1428

510-632-1366 Phone
510-568-6040 Fax
Send us email


Interested in working with us?  Click here for more information.

Commentary

Silicon Valley Employers Go Wild with Lavish Employee Benefits


     
 Print 

Say “employee benefits” and pensions and health care will jump to most people’s minds. Maybe life and disability insurance will pop up as well. But employers in Silicon Valley are going way beyond that. They’re providing housekeeping, cooking, babysitting and a host of other services as perks for their employees. According to The New York Times, here is what some California companies are doing:

  • At Evernote, a software company, 250 employees—every full-time worker, from receptionist to top executive—have their homes cleaned twice a month, free.
  • Stanford School of Medicine is piloting a project to provide doctors with housecleaning and in-home dinner delivery.
  • Genentech offers take-home dinners and helps employees find last-minute babysitters when a child is too sick to go to school.

To hear the employer representatives tell it, companies are providing their workers with services that make it easier to balance home and family life in an age when there are few stay-at-home spouses and work is stressful.

But a more likely explanation is economics. Can an employer manage housekeeping or home cooking services better than the employees themselves? Wouldn’t it make more sense for the employer to pay higher wages and let the employees decide how to spend the extra cash? It would if taxes didn’t get in the way.

Remember, these benefits aren’t really free. They are an alternative to paying higher wages. But even moderate income families in California can face marginal tax rates that approach 50%. When an employer tries to pay a worker one more dollar, the employee takes home slightly more than 50 cents. Most employee benefits, however, are tax free. That means that the benefit could be worth half its cost and still be a good deal for the employees.

Here are a few more examples of what California companies are doing.

  • At Deloitte, the consulting firm, employees can get a backup care worker if an aging parent or grandparent needs help. The company subsidizes personal trainers and nutritionists, and offers round-the-clock counseling service for help with issues like marital strife and infertility. Deloitte executives, and other experts, said they believe that such benefits were likely to spread.
  • At Google, the company has expanded its benefits beyond free meals, dry cleaning and other services on campus to offering $500 to new parents. The company has also arranged for fresh fish to be delivered to the office for employees to take home.
  • At Facebook, employees can take home a free dinner or, if working late, their families can come in to eat with them, leading to a regular sight of children in the campus cafeteria. The company also pays $3,000 per family in child care expenses, and offers adoption assistance of up to $5,000.

I’m not a tax specialist, but it looks as though almost all these benefits are being paid with pre-tax dollars. And in California the difference between pre-tax and after-tax is large.

Currently, the highest marginal tax rate for the federal income tax is 35%. Throw in a 2.9% Medicare tax and the highest rate for this year climbs to almost 38%. In California, with maximum 9.3% state income tax, the highest rate rises to 47.2%.

Even Californians of moderate means face very high marginal tax rates, since the 9.3% rate kicks in at less than $100,000 of income. Take someone in the 25% federal income tax bracket, facing a 15.3% (FICA) payroll tax and a 9.3% California income tax. The combined marginal tax rate is almost 50%. This means that the individual (and her employer) have an incentive to spend up to 49 cents in order to avoid a dollar of income. California employers are betting that their employees would rather have a dollar’s worth of (untaxed) goods and services in kind rather than 51 cents in cash.

All of this raises two questions: (1) is it good to have marginal tax rates so high? and (2) what tax free benefits would you be willing to forgo in order to lower them?

The first question is being asked of Mitt Romney and Paul Ryan, since they are advocating a 20% reduction in federal income tax rates—to be paid for by eliminating loopholes and deceptions. But a similar question could also be asked of Barack Obama, who has endorsed broadening the base and lowering the rates for corporations.

In the 1980s, leaders of both political parties endorsed the idea of tax reform. That meant getting rid of deductions, loopholes, credits and other tax preferences, and lowering the rates. The idea: we can collect the same amount of revenue without creating perverse economic incentives, including the incentive to avoid realizing taxable income. Everyone agreed that the economic effects would be positive. That agreement led to the tax reform act of 1986. Since then, the agreement has unraveled.

So it’s disturbing to learn that Sen. Chuck Schumer is now against any tax reform that lowers the rates. If tax reform is a Republican—rather than a bipartisan—idea, it is much less likely to get enacted. It is also disturbing to see leading economists reject the idea of fundamental tax reform. In the 1980s, the entire profession was generally favorable toward a move to some kind of flat tax.

A flat tax need not be regressive, by the way. Boston University economist Laurence Kotlikoff and I have proposed a “progressive flat tax,” under which the payroll tax and the income tax would be merged and everyone would face the same rate on all income that is not saved and invested. The only exceptions are refundable tax credits for health insurance and retirement savings. We found that the overall impact was progressive: low-income families come out better than they do under the current tax system.


John C. Goodman is a Senior Fellow at the Independent Institute and President and Kellye Wright Fellow in Health Care at the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”

PricelessNew from John C. Goodman!
PRICELESS: Curing the Healthcare Crisis

To cure the ailments of American healthcare we must get rid of the perverse incentives that raise costs, reduce quality, and make care hard to access. We must allow a free-market price system to emerge, so that the laws of supply and demand will work to the benefit of patients and providers alike. Learn More »»






Home | About Us | Blogs | Issues | Newsroom | Multimedia | Events | Publications | Centers | Students | Store | Donate

Product Catalog | RSS | Jobs | Course Adoption | Links | Privacy Policy | Site Map
Facebook Facebook Facebook Facebook
Copyright 2014 The Independent Institute