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Does the US not have marginal tax brackets? That seems really odd and dumb. The benefit cliff you cite is real, but for actual income taxes, there's no such t

by magduf 7y ago

Does the US not have marginal tax brackets? That seems really odd and dumb. The benefit cliff you cite is real, but for actual income taxes, there's no such thing as a reduction in income from higher earnings. Going to a higher tax bracket just means you pay higher taxes on money over a certain threshold. So if bracket A is 20% under $50k, and bracket B is 30% over $50k, if you make $51k, you'll pay 20% of 50k, plus 30% of 1k. It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects). Strangely, a lot of people don't understand this at all.

chromaton 7y ago
In addition to the benefits stuff listed here, you can also go backwards on income due to the Earned Income Tax Credit cutoff.
aw1621107 7y ago
As far as I know, the US tax system works the way you describe.
BlargMcLarg 7y ago
The Netherlands has this issue as well, points of income where your marginal gain is negative, ergo losing net money when making more gross money due to losing benefits. There are also indirect problems such as losing access to certain services (cheaper housing being one). Obviously, this shouldn't be the case. Making more money gross should result in equal-or-more money net, without disadvantages, otherwise the incentive is gone.
- sobani 7y ago
  The first table (image) in this post https://gathering.tweakers.net/forum/list_messages/1735517 https://gathering.tweakers.net/forum/list_messages/1735517 shows this issue. It's in Dutch, but the most important columns are the first (gross income), the second to last (net income, including benefits) and the last (effective tax rate on the 1000 gross income increase). Note the last column tells us that making 1000 gross extra will increase your net income about 100 between 32K and 31K gross income. Going from 31K to 32K will even make you lose money.
the_watcher 7y ago
Marginal tax brackets yes, but there are also benefits that you lose access to based on income. The linked article is about food stamps, but imagine something like subsidized health insurance for people making under $50,000. Going from $49,999 to $50,0000 is much more costly than the taxes you paid on that dollar.
kevstev 7y ago
There are special benefits provided for those under low incomes in many jurisdictions. If you go from $24,999 to $25,000 you may see some supplemental food income benefits go from $400 a month to $200 a month (not an actual example- but you get the idea). Generally though, these cases are not common and are really overstated as a problem IMHO. They also tend to overlook that its far more beneficial to take the raise and whatever temporary setback that might come with it to move yourself up the wage scales. Why it comes up in these discussions as something meaningful always confuses me. To me its akin to explaining to someone that squirrels are not harmful to humans and we should not walk around terrified of them and having someone come by and say "but actually, they could have rabies...." I mean, you aren't wrong, but you are essentially spreading misinformation by implying that this is common instead of exceedingly rare and something people should be wary of as they walk down the street every day. Its the exact type of misinformation that politicians use to make disingenuous arguments to steer people into supporting their policies, and the HN crowd should be above that IMHO.
sporkland 7y ago
US does have marginal tax brackets. There is the benefit cliff. But there are also tax credits that phase out progressively with higher incomes. Though I doubt, but don't know, than any of those produce net negatives. They may be closer to net neutral. The OP was describing the same thing as you. People don't understand marginal tax brackets and do silly things like not want raises for tax reasons.
dwild 7y ago
> It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects) It's never disadvantageous except when it is? That sound like the classic anchorman citation: 60% of the time, it works every time Sure your tax bracket won't directly means less returns, but switching from a tax bracket to another may means having access to less benefits, which may means a higher effective tax rates.
- dwild 7y ago
  I just saw that I was downvoted... I have no idea what's wrong with my comment. That downvote button should definitely force to comment and explain why you downvote.
  - Sohcahtoa82 7y ago
    Think of it another way. This statement: > It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects). is essentially equivalent to: > If you're not on government benefits, where there are some weird effects, then it is never disadvantageous to make more money. But if the wording was done the second way, you probably wouldn't have had a problem with it.
    - dwild 7y ago
      Thanks for the input, you do bring an excellent point. I wouldn't agree that they are equivalent though, one is formed specifically to give the impression that it's never disadvantageous, while the other isn't. Parentheses aren't used to bring essential information, which in this case, it is essential. This is why I would have less problem with the second one. I would still precise that some of theses benefits aren't really a choice, they are tax break that just happens to be offered because of your income, so sure if you already went beyond that income, you aren't on that government benefit... but at one point you weren't beyond that income and you did made less money once you went beyond.

by magduf 7y ago

chromaton 7y ago

In addition to the benefits stuff listed here, you can also go backwards on income due to the Earned Income Tax Credit cutoff.

aw1621107 7y ago

As far as I know, the US tax system works the way you describe.

BlargMcLarg 7y ago

The Netherlands has this issue as well, points of income where your marginal gain is negative, ergo losing net money when making more gross money due to losing benefits. There are also indirect problems such as losing access to certain services (cheaper housing being one). Obviously, this shouldn't be the case. Making more money gross should result in equal-or-more money net, without disadvantages, otherwise the incentive is gone.

sobani 7y ago
The first table (image) in this post https://gathering.tweakers.net/forum/list_messages/1735517 https://gathering.tweakers.net/forum/list_messages/1735517 shows this issue. It's in Dutch, but the most important columns are the first (gross income), the second to last (net income, including benefits) and the last (effective tax rate on the 1000 gross income increase). Note the last column tells us that making 1000 gross extra will increase your net income about 100 between 32K and 31K gross income. Going from 31K to 32K will even make you lose money.

the_watcher 7y ago

Marginal tax brackets yes, but there are also benefits that you lose access to based on income. The linked article is about food stamps, but imagine something like subsidized health insurance for people making under $50,000. Going from $49,999 to $50,0000 is much more costly than the taxes you paid on that dollar.

kevstev 7y ago

There are special benefits provided for those under low incomes in many jurisdictions. If you go from $24,999 to $25,000 you may see some supplemental food income benefits go from $400 a month to $200 a month (not an actual example- but you get the idea). Generally though, these cases are not common and are really overstated as a problem IMHO. They also tend to overlook that its far more beneficial to take the raise and whatever temporary setback that might come with it to move yourself up the wage scales. Why it comes up in these discussions as something meaningful always confuses me. To me its akin to explaining to someone that squirrels are not harmful to humans and we should not walk around terrified of them and having someone come by and say "but actually, they could have rabies...." I mean, you aren't wrong, but you are essentially spreading misinformation by implying that this is common instead of exceedingly rare and something people should be wary of as they walk down the street every day. Its the exact type of misinformation that politicians use to make disingenuous arguments to steer people into supporting their policies, and the HN crowd should be above that IMHO.

sporkland 7y ago

US does have marginal tax brackets. There is the benefit cliff. But there are also tax credits that phase out progressively with higher incomes. Though I doubt, but don't know, than any of those produce net negatives. They may be closer to net neutral. The OP was describing the same thing as you. People don't understand marginal tax brackets and do silly things like not want raises for tax reasons.

dwild 7y ago

> It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects) It's never disadvantageous except when it is? That sound like the classic anchorman citation: 60% of the time, it works every time Sure your tax bracket won't directly means less returns, but switching from a tax bracket to another may means having access to less benefits, which may means a higher effective tax rates.

dwild 7y ago
I just saw that I was downvoted... I have no idea what's wrong with my comment. That downvote button should definitely force to comment and explain why you downvote.
- Sohcahtoa82 7y ago
  Think of it another way. This statement: > It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects). is essentially equivalent to: > If you're not on government benefits, where there are some weird effects, then it is never disadvantageous to make more money. But if the wording was done the second way, you probably wouldn't have had a problem with it.
  - dwild 7y ago
    Thanks for the input, you do bring an excellent point. I wouldn't agree that they are equivalent though, one is formed specifically to give the impression that it's never disadvantageous, while the other isn't. Parentheses aren't used to bring essential information, which in this case, it is essential. This is why I would have less problem with the second one. I would still precise that some of theses benefits aren't really a choice, they are tax break that just happens to be offered because of your income, so sure if you already went beyond that income, you aren't on that government benefit... but at one point you weren't beyond that income and you did made less money once you went beyond.