A piece of conventional wisdom I've been hearing ever since I was a child that higher marginal income tax rates for higher tax brackets are a problem because people would be disincentivized to work more and earn more money.
I question that notion because of the way tax brackets work (the higher tax rate is applied to the next dollar earned, not to the income as a whole, so your net salary never decreases when your gross salary increases) but today in the shower it occurred to me: if it was in fact a disincentive to working more, would that actually be a problem?
Suppose you're working a 40-hour workweek, but you feel like you'd earn enough working 30 hours and the extra 10 just aren't worth your while. So you scale back to 30.
You know what that's called? Work-life balance! Good for you!
But what if everyone did it?
If everyone scaled back their 40-hour work week to 30 hours because it just wasn't worth it to them to work any longer, then only 75% as much work would get done. If there was demand for more work to be done, employers would have to hire more people.
Know what that's called? Job creation! Good for you!
I strongly doubt that higher income tax rates in higher tax brackets would have this kind of impact to any significant extent, because most people live a lifestyle that is commensurate with their income and aren't in a position to just go "Meh, I have enough, there's no point in earning any more."
But if they did, I don't think it would be a bad thing.
2 comments:
Very few individuals have any meaningful amount of control over their work hours. Some can't get out of mandatory overtime, while others are locked into part time status (this is a very big thing in the USA). Tax incentives for breaking killer overtime jobs into merely full time jobs (with the definition of full time maybe being fewer hours) would accomplish more if applied to employers.
Yeah, that's another reason why I question the original conventional wisdom.
Post a Comment