More Tipping

We need more tipping. Yes, read that again, we need more tipping. You are probably confused right now and think this is a bit of a hot take. Hear me out.

Tipping in efficient.

There has been a significant backlash against tipping since the COVID-19 pandemic. It is expected. Asking for tips looks like passing the company responsibilities to the customer. This may be the case but it results in more money in the pocket of the consumer and more money in the pocket of the worker.

Consider the alternative. If tipping were banned, then industries where tipping is customary will need to increase wages. On the surface this looks like a good outcome. People get paid more for their work and you get happy workers. However, you need to fund these wage increases with price increases. So far it looks good. Consumers pay more for the product, the additional cost is passed along to the worker. That would be great if you lived in a place without a functioning government that did not collect taxes. It isn’t just the income tax on the wages, and yes the tips should be declared. There are other taxes eating away at the transfer of resources from the consumer to the worker.

First you will have to deal with sales taxes. Most goods and services are taxed on their retail value. So, for argument’s sake you went out for dinner and the appropriate tip was $10. If tipping was banned, then the total bill value should go up $10 so what you would have paid in tip to the worker is collected and passed onto the worker in the form of greater wages. If you live where I do in Ontario, Canada you then have to pay 13% in Goods and Services Tax which would be an additional $1.30 out of your pocket to pass the same amount to the worker.

Secondly, you have to consider payroll taxes in your jurisdiction. I’m not talking about income tax, I’m talking about deductions from the paycheque or amounts employers must pay to employ people. This money will erode the amount of cash that reaches the employee.

Tipping is more efficient. Even if the worker declares all their tips, they will get more money and the consumer will pay less money than if the employer charged a higher amount for the good or service and passed the equivalent of today’s tip on to the employee. Governments need money and they will find any way to get it.

So, tip your servers and anyone else who deserves it and be grateful that they are getting more and you are giving less.

Necessary Evil

I was reading some news on CBC.ca. I find it to be a good source for info. While I was reading a story about inflation. It was a decent story. Then I did the thing I often do but hate myself after. No I did not binge on ice cream. I read the comments.

I could write a few pages on the sad state of the comments made by readers on web news services but that's not what I want to write about today.

It is clear that people do not understand what inflation is or how the economy works.

It is normal that people say inflation is a tax. It is normal to read that inflation is controlled by the rich to disadvantage the working class.

The truth of the matter is inflation and unemployment are unpleasant but completely necessary for the economy to function properly. Today we will discuss inflation.

In any economic system investment is important. People who have money need to use the money to make more money. They need to take some risk with there money. Usually this is accomplished by giving money to someone else who uses the money to make or sell something, also known as investing. The person who accepts the money then returns the money used and some more to the original person. This is the return and hopefully there is enough more to offset the cost of inflation so the original person can buy more than they could in the beginning.

Now imagine we did not have inflation.

At first this looks ok. Your money would keep the same amount or gain buying power. Sounds good. However, if your money will do more over time by just sitting there, then there is no motivation to invest. You can gain buying power without risk. This also may sound good as the rich will not their money to get richer. However, if the people with money do not invest it, there is no company to go and work at and no job to make money. That could be ok since there would be nothing to buy anyway.

What this shakes out to is, your money losing value motivates everyone to invest to off-set the loss in buying power. This investment ensures there are jobs to work and things to buy.

Although it may seem like it sucks that your money is losing value, inflation is a good thing.

Through all this I just wish people who post to CBC.ca actually understand what they are talking about but that may be too much to ask.