> Just for the record, I have
> never in my life met anyone
> who quit working because their
> taxes were too high, nor have
> I ever even heard of someone
> who suddenly wanted to work
> harder because of a tax break.

Well, I did have a friend in Belgium who got married and found that her marginal tax rate had gone to 105%. Since she was earning less for every additional hour she worked she did cut back her total working hours.

Somehow I don't think we are anywhere near that point.

Cranky

No, I wouldn't rule it out. Work down at the bottom is grinding, unfulfilling, and tends to not bear sufficient benefits, like health insurance or some sort of pension plan. Paying income taxes to a government that doesn't represent your interests is almost an insult. The only real problem with thinking that is the way that dissatisfaction works in favor of the anti-tax plans of the wealthy, who are abundantly represented and should be paying. Otherwise, it makes perfect sense.

Cranky is right that we're not anywhere near the point where people would work less taxes were higher.

However, it is conceiveable that someone who made a lot of money getting paid by the task or the billable hour (eg, doctors and lawyers) could decide that working 10 more hours on top of a 60-70 hour work week isn't worth the money it would bring in if marginal tax rates on that additional income were too high.

Note, however, that if you're in a profession where your income comes in the form of interest or capital gains (eg, hedge fund manager), all that extra income is taxed at the same rate, and you can't easily translate more money into more hours worked. These sorts of people, along with those who are paid on salary, would not be affected by changes in marginal tax rates.

Yeah, it seems to me there are only four circumstances under which this idealized notion of work incentives holds true:

1. Marginal taxes are greater than 100% of income.

2. Taxes are high enough at a particular level or in a particular industry that a lower-paid and lower-stress job is notably more profitable in time and roughly equal in money.

3. External factors push the loss of income to a point where work-related external expenses exceed the income. E.g., childcare.

4. Society is structured in such a way that choosing not to work is considered acceptable. Western society's drive to achieve is such that once one finds a generally acceptable career (that itself is defined on a personal level), people won't bypass the opportunity to earn more, even if it's less more than it otherwise would be. It's a particular irony that the society that gave birth to Adam Smith also gave birth to the "Protestant work ethic," which prevents the expected effect of taxes on work from actually applying as it should.

Ezra, this is so wrong. Just think how hard CEOs would work if capital gains weren't taxed at all! And if we don't tax the working poor higher than rich folk (net), what will motivated them to work harder?

True story: My college roommate was baby-sat by Michael Dell. Despite the insane, Communistic marginal tax rates propounded by History's Greatest Monster, he still persisted and now has a solid island. OK, that last part wasn't true.

I don't agree. Think about it. Say you decide you'd like to move from $39K to $49K, but in order to do so, you need to go back in for re-education costing you $30K plus 2 years opportunity costs, and taxing the extra income at 10% more.

Is it worth it? True, re-education and opportunity costs are *way more costly* but the $10K you're going after in the first place isn't as good as it sounds, either.

Most people don't pay much attention to their tax forms, but sometimes you do kill yourself only to end up kicking yourself.

Of course, our Masters of the Global Universe want us to go in for re-education every few years in order to stay at $39K, but that's another story.

I have--in the 80's the parents of a friend of mine pretty much stopped working. But that was with a marginal rate around 80%, I think. Most serious people don't deny that there is a Laffer Curve, they just point out that we're way the hell over on the left of it.

Anyone ever hear of Social Security? We had an employee last year that quick working for us and went to CVS because they paid less and didn't offer as many hours. If she had stayed with my company she would have lost her SS check.

Many many people shifted assets into the stock market when capital gains where lowered. Taking the risk of investing and having any success taxed at 36% isn't nearly attractive or worth nearthe risk if your only taxed at 15%. It's not always a question of working or not but the amount of work. I'm sure you can find people that invested in a company or started a business they would not have other wise if taxes where higher. Why take the risk of starting a company if 70% of the profit goes to taxes.

A perfect example is I wont start a company or open an office any where with a gross receits tax. I'm not taking the risk of opening a business and at the same time pay taxes when I am losing money.

Nate, that is a feature of the SS system, not a bug, which had been there since the beginning: the idea was that you wanted to get older workers of retirement age out of the workforce, giving them an incentive to retire, allowing job slots to open up for people who were younger. I believe, however, that this law was changed in the relatively recent past. But that is only tangentially related to marginal tax rates.

I suspect there are a lot of low-earning spouses of high-earners who choose not to work because of (a) the fact that they'll pay their spouses' marginal rates, and (b) their social security payments (based on their spouses' incomes) will be the same whether they work or not.

For example, mine.

Tyro,

Losing your SS check because you're earning too much money is exactly the same thing as an income tax increase. It just doesn't appear as a line on your 1040.

Avedon is just doing bad armchair sociology, and Ezra should know better.

Now, I don't think that quitting, or even cutting back on work, is something that high earners typically do in response to marginal taz increases. Most high-earners are salaried, and don't have the option to just "work less".

On the other hand, retiring early is an option. But insofar as that is a problem, we could just cut marginal rates on those 60 and up!

I wouldn't be surprised if marginal rates affected the length of tours for rock stars, though.

jhupp: "1. Marginal taxes are greater than 100% of income."

Less than but near 100% would do it, too. The canonical example is the movie star in the 1950s, when the top rate was over 90%. They might do two movies in a year, but if they did a third, Uncle Sam would take 90% of the income. So they decide not to do a third movie. Which is acceptable for such workers despite your Circumstance #4.

I don't shed many tears for those who have the privilege of being taxed at 90%. Presumably they're not going hungry.

Ezra, if you believe this strawman is a real zinger, then it's just evidence of how shallow your understanding of the issue is.

> Just for the record, I have
> never in my life met anyone
> who quit working because their
> taxes were too high, nor have
> I ever even heard of someone
> who suddenly wanted to work
> harder because of a tax break.

I have seen people who quit their jobs because their take home compensation was not enough.
I have seen union workers strike because a corporation sought to lower their take-home pay.
I have seen people work harder because they believe they will make more money.

Few would be happy to do their current job for less money. Few would be happy to work harder for the same money they currently make.

Raising taxes is, to a worker's pocketbook, a cut in pay. Lowering taxes is an increase in pay. It's wrong to act as if people feel differently about how the government alters their compensation than they do if an employer does it. They are unhappy either way. Most people can't afford to "stop working" if the government raises taxes, but that doesn't mean they can easily afford the loss in pay.

That maybe the case in the US, where we have fairly low top tax rates, but as this article describes, high rates of tax do indeed cause people to do less work.

kaybeel: "It's wrong to act as if people feel differently about how the government alters their compensation than they do if an employer does it."

There is a difference. In theory, tax changes hit everyone. There's no sense of injustice that I'm getting paid less while my coworker or the guy down the street is getting paid more. Except, of course, where tax policy is applied unjustly.

If you check the OECD data you will see that back in the early 1960s when tax levels in Europe were similar to ours, Europeans and Americans worked about the same number of hours per year. Today, European tax levels are far above ours and aggregate work hours are much lower in Europe than here.

There is a difference. In theory, tax changes hit everyone. There's no sense of injustice that I'm getting paid less while my coworker or the guy down the street is getting paid more. Except, of course, where tax policy is applied unjustly.

In a union, everyone gets the paycut.
The guy down the street or the coworker will get the same paycut. That generally is not enough to convince a union to gladly accept a paycut.
The WGA has been stiking because they want, in effect, a pay raise. They have not been satisfied with their previous agreement simply because all the writers were all in the same boat.

You are correct that tax cuts can be across the board and that may affect behavior. It isn't that the sense of injustice doesn't exist, it's that the worker has fewer options- every where you work, your taxes would go up. There's no going to your neighbor's employer to get away from the tax increase as you could do to get away from a pay decrease. The country has coerced the worker into accepting less pay for the same work. You may not resent your neighbor, but you sure as heck might resent your government.

In fact, the more I think about it, the more outragous this paragraph becomes. People don't stop working when taxes increase because they are taking home less pay. They can't afford to quit, and may in fact have to work more.
Ezra and Avedon must hang out with some really wealthy people, if quitting work in the face of tax increases is an option.

When I was a student, I received a welfare-type payment which was indexed rather steeply according to my income. I think I started losing welfare money when I earned $90 a week, and I lost more for every dollar I earned until at around $160 a week I lost the welfare payment altogether. Because my hours were unpredictable, I would often fill out the fortnightly forms to receive no money. Eventually I decided the welfare payment wasn't worth the administrative burden, so I gave it up in favour of taking on more casual hours. A lot of my friends under this system did the same thing.

So I guess you could say that the welfare payments, in effectively diminishing the marginal benefits we received for working extra hours, were originally encouraging us to work less hours, much as people claim progressive taxation does. But most of us chose to jettison the welfare, not the work – because we could still earn more by working than we could by staying on welfare alone, or even a combination of work and welfare.

This is a tale from the low end of the income spectrum. But people work more hours for a bunch of reasons – avoiding paperwork, avoiding family time, being able to answer "busy" to the question "how are you?" - and marginal tax rates would only ever be one factor, if they are considered at all.