Who Pays for the State? A Reply to Robert Chernomas and Ardeshir Sepehri

Abstract

Robert Chernomas and Ardeshir Sepehri indicate that various state-supported transfers that go to the “underclass” are largely paid for by taxation of workers' compensation. Such expenses therefore cannot be considered drains on the social surplus which would otherwise be available to dominant classes in the form of “exploitation.” These arguments are criticized on two grounds. First, Chernomas and Sepehri greatly underestimate the total social costs of the existence of an underclass, and this broader array of costs almost certainly impinges on the social surplus even if direct transfer payments do not. Second, they incorrectly identify the empirical target with the relationship of taxation to the social surplus. Even if state revenues take the form of an income tax on ordinary workers, at least some of this taxation should be considered a deduction from social surplus rather than from workers' standard of living (since, in the absence of the taxation, workers' equilibrium wages would not increase by the equivalent of the taxes).