Something I don't understand that is sure to get me flamed

[tim]

So there's this idea that if we increase taxes on the rich, then rich people will stop working so hard (that the rich work hard is already questionable, but let's go with it) and, I don't know, stop producing all the social goods that rich people produce.

I mean, I think it would be great if just increasing taxes, by, say, 2% on household income above $500,000/year would make some of those high earners say, "Goshdarnit, it's not worth it for me to earn this much money if the government is just going to take it away. I better get a job teaching in an inner-city elementary school instead, brb." But somehow, I don't think that's going to happen.

Is it *really* that easy to stop people from being greedy? I'm not sure greed would deserve its deadly-sin status if it was that easy to eradicate.

And while I'm at it, what's up with accusations of "class warfare"? Rich people have been waging war on everyone else since, oh, whenever it was that some people started being rich. (In fact, that's how you get rich in the first place.) The rest of it is just class self-defense.

Comments

[anemone.livejournal.com]

Now $5,000 is real money to me, but to someone making $250K it should be marginal noise.

Suppose you have a dual income household with kids, where one person earns $$$$ and the other person earns substantially less (say is a school teacher), it doesn't end up being marginal noise in the low-earner's salary.

The school teacher's salary is largely eaten by taxes, childcare, and expenses. For example, suppose the salary is $50,000 year, which means at 35% tax rate, the teacher takes home 32,000. (If the teacher were not married, there'd be deduction and stuff so the effective tax rate would be lower, but as the second salary, those are already taken.) Now, childcare is, say, $24,000 (two small kids--I pay $315/week for my daughter, figure two kids, 3/4 of the year), so a year's worth of work is only making $8000. A two point change in the marginal tax rate makes a $1000 change in the value of that second worker's after-tax income, and when that yearly income after expenses is $8000, that's a big deal.

I'm not sure this is a notable effect, though. I don't know how many households are like this (though I don't believe it's that uncommon for one wage earner to make much more than another), and second, some people work for reasons that have little to do with money.

[tim]

Wait, 35% taxes on a $50K salary? In 2009, the tax rate for a single person with that income was 17%.

Also, I don't think someone who makes that amount of money would pay $1200/month for child care; after all, that's more than some people's salaries.

[anemone.livejournal.com]

Wait, 35% taxes on a $50K salary? In 2009, the tax rate for a single person with that income was 17%.

Sorry, I said dual-income, but what I really meant was married. The situation I'm imagining is a married couple with kids, where one makes $$$$ and one makes $. I know a fair number of these couples.

In that case, the decision is whether the $-earner should work at all, so it makes sense for the family to compare assume the $$$$-earner works, and then compare total income from $-earner also works vs the case where the $-earner stays at home. My argument does not apply if you're considering a single earner making $50,000 year, for the tax rate reason (and such a person would pay well under %17 percent in total tax, even if the marginal tax rate is 17%).

As far as my childcare numbers being realistic, yes and no.
(1) Yes, it is. A married couple earning $$$$ jointly is probably going to spring for licensed daycare. My number isn't crazy-high for NY for that. A friend of mine paid twice what I do.
(2) No, it isn't, because my numbers were a little high (licensed day care in NY for a toddler is more expensive than a home daycare for an older child, and once kids are in school, it gets cheaper). But we're still talking a big chunk, and I intentionally made my teacher salary high, so the percentages in terms of salary probably work out.
(3) No, it isn't realistic, because low-earners who cannot afford childcare can often use relatives or friends for relatively cheap care. I didn't include this because I'm specifically looking a couple with one high earner, and those couples probably aren't going to be able to get grandma to be a regular babysitter.

[etb]

If it's not crazy-high for NY, it might still be crazy-high for most of the US, I'm guessing. (Tim didn't mention it, but I'm pretty sure his post was inspired by an Oregon ballot measure.)

[anemone.livejournal.com]

It's definitely higher here than other places, and maybe you could say that it's crazy-high compared to other places. (And my NYC friend's daycare was double(!) mine.) But I also suspect salaries are higher here, even for (relatively) low-wage workers like teachers.

And also, even if my numbers are wrong, the fact remains that unless you get a family or friend to provide care, childcare is expensive enough that some people cannot afford to work. (My SIL loses money if she has to pay for childcare.)

[etb]

The school teacher's salary is largely eaten by taxes, childcare, and expenses.

Why are you allocating all the childcare costs to the schoolteacher's income? If it's because the household wouldn't need childcare if the teacher stayed at home, well, they wouldn't need childcare if the spouse earning $$$$ stayed at home, either.

[etb]

Also, if we want to try to give each spouse some "share" of tax (and I'm not sure that actually makes any sense; the government* taxes them as a unit), why do it proportionally? After all, if the teacher were single, they'd be in a lower bracket and would pay disproportionately less tax. It's the $$$$-spouse who brought almost all the taxes down on them, so why not assign almost all the taxes to that person's income?

* If we're talking about the US. Canada allows spouses to trade income and deductions to some extent, but there's no such thing as filing jointly.

[anemone.livejournal.com]

I am talking about the US. Even in the US, this argument doesn't apply when we aren't talking married filers.

Most families with a $$$$-earner and a $-earner and two kids aren't going to consider the $$$$-earner becoming a stay-at-home parent and living off the $-earner's salary. That'd require a radical lifestyle change (moving out of the house, possibly to a different area of the country, their kids would be in a worse school district, etc).

What they are more likely to consider is whether the $-earner should work at all, so that's how I looked the issue. That is, I compared how much total money the married couple takes home when both $$$$-earner and $-earner work, vs how much total money the family takes in when $$$$-earner works and $-earner watches kids at home. How big that gap is will likely affect whether the $-earner makes the decision to work or not.

[anemone.livejournal.com]

The point is that Tim didn't ask a generic fairness question (in which case assigning the tax as I did would be silly), he asked specifically "how would changing the marginal tax rate on rich people change their behavior?"