Tag Archives: specialization

The “do it yourself” trend caused by high taxes

For at least 2,400 years, philosophers and economists knew the benefits of specialization, also known as division of labor. Xenophon wrote in the 4th century BC, “he who pursues a very specialized task will do it best.” Adam Smith greatly elaborated on this, as did many others.

Today, however, we are starting to see a trend away from specialization toward “do it yourself.” Here’s an example:

Do-it-yourself trend growing

People stretch dollars by doing their own chores

Across the country, people are taking on chores that only a year ago were hired out to someone else. They’re dyeing their own hair, shoveling their own snow, washing their own cars and taking up paint brushes to brighten their living room walls.

This trend toward “do it yourself” is partly caused by the high rates of taxation in the United States. I’ll give you an example:

If I need a plumber to come fix my sink, first I have to earn the money and give 40% or so to the government in taxes.

Using the money I just earned, or the 60% that remain, I hire a plumber. The plumber knows that he needs X dollars per hour for his work. But because he has to give 40% of his income to the government, he actually charges 67% more than he receives after taxes (ie. he needs $60, but charges $100 with $40, a 67% increase in price, going to the government).

So to pay for $60 of plumbing work, I actually have to earn $167 ($167 – 40% of $167 is $100 to pay the plumber’s $100 so he can keep $60).

Thus, the cost of hiring somebody to do a $60 repair is $167. Even if it takes me three hours to do the repair instead of 1 hour, it just about pays to do it myself instead of hiring somebody.

The result of our high rates of taxation is a terrible choice. The homeowner can either hire a plumber to do the work for him, but with a 40% tax on income, he must earn nearly three times the amount of the plumber’s after-tax income to pay him for his work. Or he can do it himself, in which case the plumber loses income and the homeowner loses both time and income he could have made working at his job.