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As others mention, if you’re a 1099 contractor (even part time), you have more options to mitigate this (tradeoff being you pay the employer’s portion of social

As others mention, if you’re a 1099 contractor (even part time), you have more options to mitigate this (tradeoff being you pay the employer’s portion of social security contribution, and must manage your own finances to withhold enough to pay the next tax bill). But you’re not wrong to be upset about this. It really doesn’t seem fair. And I’m not sure the government could get away with it so easily if they weren’t able to deputize employers to withhold taxes from your paycheck. Btw, IMO this is also part of the reason for targeting 1099 status of the gig economy – collection rates are much lower for contractors (who must pay their own taxes, and may not have the funds available to do so) than for employees (who have their taxes withheld from their paycheck so they don’t need to pay tax on their salary). I’m of the firm belief that the first $100k in individual income should be taxed exactly $0. Taxing unsophisticated, frequently barely profitable contractors – and penalizing them for failure to maintain savings or meet filing deadlines - is counterproductive to a successful economy. The IRS collects 80% (or more) of its revenue from Americans with more than $100k income. On the other hand, Americans with 1099 status and under $100k income almost certainly feel a greater relative psychological and financial burden of tax compliance than anyone making over $100k. Many of them need to choose between paying bills or paying the IRS – whereas for higher income earners, tax compliance is much less stressful as there is never any doubt whether they’ll have enough money to both pay their taxes (on time) and survive. In this sense, the tax system feels disproportionately unfair to a large segment of the population that contributes to a comparatively small percentage of tax revenue.

necovek 5y ago
The one reason to have continually growing "tax function" is to avoid a particular number be more beneficial than a larger number. Eg. someone making $100k is better off than someone else making $100001, but also maybe $120k (depending on the tax rates). Basically, at $100k, there is no incentive to earn more because your net, take-home figure will be lower if you do, until you jump significantly over the hoop.
- TechBro8615 5y ago
  That is not how marginal tax rates work. I’m not suggesting we abandon marginal tax brackets. In the case of your example, the person who earned $101k would pay tax on the $1k above $100k, i.e. they would pay $200 of taxes. The proposal to start taxing only amounts above $100k is not fundamentally different from the standard deduction or personal allowance that already exists (YMMV by jurisdiction). My proposal is simply to increase this floor by 10-20x.
  - necovek 5y ago
    That wasn't clear from the "proposal", and there are tax schemes in the world were it worked exactly like this. Thanks for the clarification though: this makes more sense indeed.
    - mr_toad 5y ago
      There aren’t many tax schemes in the world where earning $1 more incurs > $1 in tax. Ironically it’s more likely to happen if you’re poor, and a gain in income causes you to lose social support or other benefits.
      - necovek 5y ago
        It's never that simple. Serbia still to this day has a scheme where you get a fixed amount taxation as self-employed "enterpreneur" up to 6M RSD (50k EUR/60k USD) of revenue, but are subjected to other taxation rules once you cross it (as a company or as an employee). It was heavily (ab)used by the IT crowd locally (until rule changes in 2019 about who can use this), and it was beneficial to stay under the 6M limit or you'd need to approach 10M (100k USD) to get the same net income.

necovek 5y ago

The one reason to have continually growing "tax function" is to avoid a particular number be more beneficial than a larger number. Eg. someone making $100k is better off than someone else making $100001, but also maybe $120k (depending on the tax rates). Basically, at $100k, there is no incentive to earn more because your net, take-home figure will be lower if you do, until you jump significantly over the hoop.

TechBro8615 5y ago
That is not how marginal tax rates work. I’m not suggesting we abandon marginal tax brackets. In the case of your example, the person who earned $101k would pay tax on the $1k above $100k, i.e. they would pay $200 of taxes. The proposal to start taxing only amounts above $100k is not fundamentally different from the standard deduction or personal allowance that already exists (YMMV by jurisdiction). My proposal is simply to increase this floor by 10-20x.
- necovek 5y ago
  That wasn't clear from the "proposal", and there are tax schemes in the world were it worked exactly like this. Thanks for the clarification though: this makes more sense indeed.
  - mr_toad 5y ago
    There aren’t many tax schemes in the world where earning $1 more incurs > $1 in tax. Ironically it’s more likely to happen if you’re poor, and a gain in income causes you to lose social support or other benefits.
    - necovek 5y ago
      It's never that simple. Serbia still to this day has a scheme where you get a fixed amount taxation as self-employed "enterpreneur" up to 6M RSD (50k EUR/60k USD) of revenue, but are subjected to other taxation rules once you cross it (as a company or as an employee). It was heavily (ab)used by the IT crowd locally (until rule changes in 2019 about who can use this), and it was beneficial to stay under the 6M limit or you'd need to approach 10M (100k USD) to get the same net income.