One of the thought-terminating cliches is with respect to marginal tax rates. "People don't understand economics you can't make more money and take home less money". I think that often takes legitimately bad arguments and groups them in with legitimately good arguments.
First let's be clear: the amount of money you take home after taxes isn't economics, it's finance. The distinction is that economics is the study of incentives, finance is the study of accounting. The two are closely related, but not the same thing. As an example, finance is saying "if we increase taxes by 10% it'll bring in another 15 billion dollars based on our current tax receipts of 150 billion" but economics is "the laffer curve suggests that as you raise taxes economic output drops and so eventually additional taxation doesn't result in additional tax revenue"
If you work lots of overtime in some places, it wipes out the time and a half wage advantage altogether and can hit your additional pay at the maximum marginal rate federally and for your region. My first dollar is tax free, but overtime pay gets hammered for nearly 50% and so you see this massive top line number and an insignificant bottom line number. You're not making less money, but for the burden of spending 10, 12, 16 hours of your day and the accompanying strain it's not worth the pain of working extra. Besides direct taxes, overtime and bonuses in Canada at least also end up getting hit with cpp and ei, so while your marginal tax rate is one thing, the total tax burden on the individual for that dollar is quite another.
Same with bonuses. Company pays out a bunch of money, but unless you lock it up in a 401k a significant portion heads to the government at various levels.
The legitimate argument saying you won't work additional overtime due to taxes isn't about not making any more money, it's about the marginal value of your time vs. the marginal payment for that time. Your last hour is more valuable to you than your first hour, but you may earn less for that last hour than you did for the first hour and so people won't work overtime because the marginal payment on offer doesn't match the marginal value and people would rather do something else with that time.
First let's be clear: the amount of money you take home after taxes isn't economics, it's finance. The distinction is that economics is the study of incentives, finance is the study of accounting. The two are closely related, but not the same thing. As an example, finance is saying "if we increase taxes by 10% it'll bring in another 15 billion dollars based on our current tax receipts of 150 billion" but economics is "the laffer curve suggests that as you raise taxes economic output drops and so eventually additional taxation doesn't result in additional tax revenue"
If you work lots of overtime in some places, it wipes out the time and a half wage advantage altogether and can hit your additional pay at the maximum marginal rate federally and for your region. My first dollar is tax free, but overtime pay gets hammered for nearly 50% and so you see this massive top line number and an insignificant bottom line number. You're not making less money, but for the burden of spending 10, 12, 16 hours of your day and the accompanying strain it's not worth the pain of working extra. Besides direct taxes, overtime and bonuses in Canada at least also end up getting hit with cpp and ei, so while your marginal tax rate is one thing, the total tax burden on the individual for that dollar is quite another.
Same with bonuses. Company pays out a bunch of money, but unless you lock it up in a 401k a significant portion heads to the government at various levels.
The legitimate argument saying you won't work additional overtime due to taxes isn't about not making any more money, it's about the marginal value of your time vs. the marginal payment for that time. Your last hour is more valuable to you than your first hour, but you may earn less for that last hour than you did for the first hour and so people won't work overtime because the marginal payment on offer doesn't match the marginal value and people would rather do something else with that time.
- replies
- 0
- announces
- 1
- likes
- 2