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You’re missing the point of the analogy. Progressive taxation doesn’t produce a cliff where you’re potentially better off if you make less money. The higher ra
by learc83 6y ago
You’re missing the point of the analogy. Progressive taxation doesn’t produce a cliff where you’re potentially better off if you make less money.
The higher rates only apply to money over the threshold.
Lambda school works the way many people think the US tax system works (but doesn’t). When you make over X, all of your money is taxed at Y. So it’s better to make X - 1 than X + 1.
- mhaymo 6y agoOnly if you place no value on paying off your ISA. Once the ISA is paid off, the "cliff" disappears. Obviously this is quite different to taxes.
- FemmeAndroid 6y agoYour ISA is a sunk cost. Obviously, if you can afford to, many people will be better off in the long term having it paid off, but going from making $4,208 a month at a $49,500 salary, then getting a small raise to $50,000 and making $3,493/month is not something a lot of people can afford. Especially when you consider how that $715/month you're losing by bumping your income could be going to debt that won't expire if you just wait out the 5 years under that cap. This is especially true if you've had a few years under $50,000 before even having the chance to edge up over $50k. It can very much be in your financial interest to not take a raise, if offered.
- learc83 6y agoISA expires after 5 years, so there's definitely a range where making more money during that 5 years will cost you more overall.