5 ms·

Except no one gets to higher rate tax by working more hours. They get there by working approximately the same hours and being paid more for them. So they're not

Except no one gets to higher rate tax by working more hours. They get there by working approximately the same hours and being paid more for them. So they're not "taking a pay cut per hour", they're just not getting as much benefit from raising their rates as they would otherwise. No one is going to refuse a salary bump because it will increase their marginal tax rate.

cmdrfred 10y ago
If you made $32.05 dollars per hour for 30 hours a week (50K a year) and paid 10% tax on those dollars, you would earn an effective after tax hourly rate of $28.84. If all dollars earned after 50K were then taxed at 15%, your effective after tax hourly rate for working more than 30 hours would be $27.24. A one dollar and six cent reduction. I believe the purpose of time and a half overtime is partly to correct this problem.
- aninhumer 10y ago
  Sure you can imagine such a scenario, but how likely is it in reality that someone earning $32/hr is only working 30 hours a week? And moreover, how likely is it that they can increase their hours, but be paid exactly the same hourly wage? I believe such people are extremely rare and as such this hypothetical disincentive isn't particularly relevant.
  - rascul 10y ago
    A couple years ago I worked with someone who, if he worked too many overtime hours (which came around from time to time), would get into the next tax bracket and it wouldn't be worth it. Not sure how much he got paid or how many overtime hours were required for that to happen, though.
    - adwn 10y ago
      > if he worked too many overtime hours (which came around from time to time), would get into the next tax bracket and it wouldn't be worth it By "not worth it", I suppose you mean that he valued the marginal increase in income less than the marginal decrease in free time – which is entirely subjective and different from person to person? I don't see your point.
      - rascul 10y ago
        In the higher tax bracket, he didn't work enough overtime to offset the increased taxes and ended up with a smaller check than if he worked less. At least that's what he claimed.
        adwn 10y ago
        This is not possible with a progressive tax system. It is likely that he misunderstood tax brackets, average tax rate, and marginal tax rate.
        flukus 10y ago
        Not with taxes alone, but welfare cliffs can kick in: http://www.learnliberty.org/blog/the-welfare-cliff-and-why-many-low-income-workers-will-never-overcome-poverty/ http://www.learnliberty.org/blog/the-welfare-cliff-and-why-m...

cmdrfred 10y ago

If you made $32.05 dollars per hour for 30 hours a week (50K a year) and paid 10% tax on those dollars, you would earn an effective after tax hourly rate of $28.84. If all dollars earned after 50K were then taxed at 15%, your effective after tax hourly rate for working more than 30 hours would be $27.24. A one dollar and six cent reduction. I believe the purpose of time and a half overtime is partly to correct this problem.

aninhumer 10y ago
Sure you can imagine such a scenario, but how likely is it in reality that someone earning $32/hr is only working 30 hours a week? And moreover, how likely is it that they can increase their hours, but be paid exactly the same hourly wage? I believe such people are extremely rare and as such this hypothetical disincentive isn't particularly relevant.
- rascul 10y ago
  A couple years ago I worked with someone who, if he worked too many overtime hours (which came around from time to time), would get into the next tax bracket and it wouldn't be worth it. Not sure how much he got paid or how many overtime hours were required for that to happen, though.
  - adwn 10y ago
    > if he worked too many overtime hours (which came around from time to time), would get into the next tax bracket and it wouldn't be worth it By "not worth it", I suppose you mean that he valued the marginal increase in income less than the marginal decrease in free time – which is entirely subjective and different from person to person? I don't see your point.
    - rascul 10y ago
      In the higher tax bracket, he didn't work enough overtime to offset the increased taxes and ended up with a smaller check than if he worked less. At least that's what he claimed.
      - adwn 10y ago
        This is not possible with a progressive tax system. It is likely that he misunderstood tax brackets, average tax rate, and marginal tax rate.
        flukus 10y ago
        Not with taxes alone, but welfare cliffs can kick in: http://www.learnliberty.org/blog/the-welfare-cliff-and-why-many-low-income-workers-will-never-overcome-poverty/ http://www.learnliberty.org/blog/the-welfare-cliff-and-why-m...