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This year I was forced to change to a 3 day work schedule (4 day weekend), by some recent boneheaded changes in Italian tax law for self-employed workers: if I
by 124909 7y ago
This year I was forced to change to a 3 day work schedule (4 day weekend), by some recent boneheaded changes in Italian tax law for self-employed workers: if I were to make more before tax, I would make less after tax. That means that the average tax rate has a discontinuity and the marginal tax rate diverges at one point.
Even if this change was to be reversed by the new government I don't think I would go back to working full time: not only I'm less stressed and more productive (per hour worked), but a more interesting change is that you stop defining yourself by your profession. You are not a programmer, you code to pay the rent and are all the other things you do in the four days you have left.
(I'm using a throwaway, because it doesn't take long to figure out what the limit income is and derive roughly how much I make per hour)
- bitcoinmoney 7y agoSo how much do you make per hour? Since you’re using a throwaway why not just tell everyone to spread the love?
- stefano 7y agoThe limit is 65k. You pay 25% to the mandatory pension fund. Of the remaining, they assume 22% of expenses and tax you 15% on what's left. So you take home ~42k net after taxes. If he were to earn 65.001 euros, he'd take home ~32k net after taxes. You need to earn at least ~80k to break even. So if you earn between 65k and 80k, you're screwed. Needless to say, that 65k becomes a ceiling because if you get a raise, you start earning several thousands of euros less. So either you're stuck at 65k, or you bite the bullet and take the hit until you reach 80k, at which point you can start increasing your take home again. So a 1 euro increase gives you a -10k "raise", while a 15k increase gives you a 0 euros "raise". It's probably the most stupid tax system in the developed world.
- Hendrikto 7y ago> It's probably the most stupid tax system in the developed world. In Germany you can end up in a similar situation, though I think the gap is smaller.
- 124909 7y agoTo be fair this is not new, they just raised the limit that keeps you in the simplified regime and the gap of negative marginal increase of income went from being around 5k to being over 50k wide.
- gherkinnn 7y agoWho comes up with ideas like this? - bad for social mobility - incentive to work off the books
- byefruit 7y agoNot as dumb and not something that catches everyone but a similar problem in the UK is free childcare. 22 hours of free childcare a week is worth ~£9k a year post-tax. If either you or your partner earn a penny over £100k then you're no longer eligible for any of your children. So with two kids in nursery a penny pay rise might lead to a £30k pre-tax pay cut.
- djmcmerlin 7y agoThat is a different situation, since a family with one partner earning £100k is assumed to be well enough off to provide childcare for their kids. Another way to look at this is that it's providing more to the poorer families who need it more by cutting away costs for richer families.
- detaro 7y agoYou could apply the exactly same argument to the other example. And regarding the second line, in both cases the problem isn't that richer people get less, but that there's a sharp cutoff instead of a gradual scale.
- byefruit 7y agoThe similarity is that there's a discontinuity which discourages you from increasing your gross pay because your net pay will be reduced. That a single £100k salary is enough to maintain a household of two kids is neither here nor there (and also depends very much on where you live).
- username90 7y agoThis is why I never understood means tested aids like this. Why isn't childcare free for everyone? Is it really that expensive to give this to those who earn more than £100k as well? All this does is create an unnecessary rift between rich and poor people.
- jobigoud 7y agoIsn't it the opposite? It fills the gap by providing poorer people free child care where richer ones can afford it by themselves?
- simonebrunozzi 7y agoI'm a fellow Italian but living abroad (San Francisco). I had no idea of this problem. It's completely dumb. When was this introduced, this year?
- stefano 7y agoYes, it was introduced in late 2018 and came into effect this year. It's basically an extension of an equally bad tax cut that was previously reserved to people earning less than 30k. Given the higher limit, it makes the jump above that limit twice as steep.
- bitcoinmoney 7y agoThank you so much for the explanation. What was the rationale behind this?
- stefano 7y agoA politician wanted votes. To get votes, you need to lower taxes. But that requires money, which there isn't much to go around. So they picked a niche of people (freelancers earning less than 65k) and gave them a tax cut. Making it progressive (i.e. everyone pays 15% on the first 65k and then a higher tax rate on the rest) would either cost too much, or be too small of a cut to gain enough votes.
- jotm 7y agoI fail to see how this system is supposed to improve things over regular progressive taxation... was it even worse before? What were they thinking?
- zozbot234 7y agoHey, one of the majority parties that are aligned with the government in Italy is literally headed by a clown. And you're surprised that they came up with this? It could be worse.
- 124909 7y agoNot quite. You can't have any deduction or detraction in t, e so-called-flat-tax regime, so your expenses are computed as a forfait depending on your profession. For us tech workers the magic number is 67%, so the effective tax rate is 10%. Also I think that my calculations make the break-even point between the two different regimes a little over 100k.
- 124909 7y agoA bit over $50/hour
- Lucadg 7y agoIf you don't mind me asking what's the law you are referring to?
- stefano 7y agoI'm not OP, but he's referring to the so-called "flat tax" for freelancers.
- sidlls 7y agoThis is exactly how many conservative Americans think our tax system works (it doesn't work like that at all). Republican politicians and their henchmen like Rush Limbaugh played that up for years during the 90s to help keep the anti-government anger stoked. Whenever they were called on it they hedged back to some weak argument about having to work twice as hard for each marginal dollar being a disincentive.
- ummonk 7y agoOur tax system does not work this way (because we have marginal tax rates, not overall tax rats), but welfare programs (which are often binary - either you get it or you don't) do end up having this effect for many people.
- sethammons 7y agoI don't understand the downvotes. I have friends who have turned down more work/pay because of it pushing them to the next tax bracket. They think that that would _lower_ their overall take home. They seem to not understand that it is a marginal rate. If they felt that the effort vs reward was not valuable, that makes sense. But they think they will actually lose money. Maybe I'm the one missing something.
- Frondo 7y agoYou aren't missing anything, there's a ton of misunderstanding around marginal tax rates; confusion that directly benefits the tax-cuts-over-all subset of American political actors.
- TrackerFF 7y agoNo, it's a completely widespread tactic and misinformation (how tax brackets work), not only in the US, but elsewhere too. I'm in Norway, and have heard the exact same things. People that turn down extra work, because they're certain that the said OT pay is getting bumped into the next tax bracket, and they'll net LESS than if they had not worked at all.
- christophilus 7y agoWe have some edge cases here in the US that are like that. If you are on a health plan and bump up to a higher pay grade, you can go from paying around $100/mo to paying over $1000/mo. I can’t remember the exact details, but I remember being really surprised it wasn’t a marginal system.