What would you do if your tax rate went up by 5%

[degsme]

OK what would you do if your Federal Tax rate went up by 5%. IE your takehome pay - assuming you don't change your work habits - drops by 5%.

The reason I ask this is that personally? I would look for some way to increase my income. OT, A raise, a better job. But in the short term I would work as hard and cut back

And I suspect most of you would as well. yet Supply Side tax theory tells us that if your tax rate goes up, you have a disincentive to work. And thus you will theoretically work less. And you will work less by MORE THAN 5% less. (because the claim is that if your tax rates are cut by 5%, you will increase your productivity by MORE THAN 5%).

So if you don't cut your work rates by 5% in response to a 5% increase in taxes, Supply Side tax theory is bogus.



BTW For those who who want to suggest that there is a tipping point but we currently are not at it... here's another poll that I have that is for helping to identify that tipping point https://www.politicaljack.com/forums/showthread.php?19412-I-would-reduce-the-amount-I-worked-if-my-taxes-went-up-by

 

[PhilFish]

I would offset by my 3% COL adjustment..and the 2% cut in payroll taxes...and keep on trucking..

 

[degsme]

I would offset by my 3% COL adjustment..and the 2% cut in payroll taxes...and keep on trucking..

By COL I assume you mean Cost Of Living - and that means basically you would seek to incrase your income - if I am understanding you corectly. Right?

 

[ya-ta-hey]

OK what would you do if your Federal Tax rate went up by 5%. IE your takehome pay - assuming you don't change your work habits - drops by 5%.

The reason I ask this is that personally? I would look for some way to increase my income. OT, A raise, a better job. But in the short term I would work as hard and cut back

And I suspect most of you would as well. yet Supply Side tax theory tells us that if your tax rate goes up, you have a disincentive to work. And thus you will theoretically work less. And you will work less by MORE THAN 5% less. (because the claim is that if your tax rates are cut by 5%, you will increase your productivity by MORE THAN 5%).

So if you don't cut your work rates by 5% in response to a 5% increase in taxes, Supply Side tax theory is bogus.

Mr. D,

I know you're a liberal and have no concept of economics nor finances, but how would reducing your net pay by 1% in any way support supply side economics?

 

[PhilFish]

well..er...yes. but...by seek...not sure that is the best descriptor... I would perform to the best of my ability in my profession and remuneration...in the form of an adjustment to compensation would follow (think..annual review..)

so..seek, of necessity..no...but...sure..i'll stipulate..if it makes you feel good.

 

[degsme]

Mr. D,

I know you're a liberal and have no concept of economics nor finances, but how would reducing your net pay by 1% in any way support supply side economics?

Um other than name calling - do you have anything to contribute to the discussion? Where is 1% net pay reduction even discussed?

 

[degsme]

well..er...yes. but...by seek...not sure that is the best descriptor... I would perform to the best of my ability in my profession and remuneration...in the form of an adjustment to compensation would follow (think..annual review..)

so..seek, of necessity..no...but...sure..i'll stipulate..if it makes you feel good.

Well given the 100 character limit on the Polling entries and the wierd way in which the post gets published while you are still working on the poling quesitons - I felt I had to compromise for brevity.

I understand your point about "seek"... its not optimal - rather the best I could come up with... I'd edit it if I could but I can't....



So onto the issue I wanted to touch on. Ok so you would essentially respond by looking to get a salary increase. IOW this would not be a disincentive to you. And you would not work less hard. Yet that is what conservative Supply Side Economics says you would do. Why do you think there is such a disconnect?

 

[middleview]

I am not living paycheck to paycheck. A reduction of 5% or so wouldn't even be noticed. Remember that we aren't talking about 5% of gross. It would be 5% on income over $x amount. So when they were talking about letting Bush's tax cuts expire for those making $250k, the tax increase on someone making $300k would have been about $28 per week.

 

[degsme]

NO I was talking about 5% increase in tax Rate - which if done across the board (notice I didn't say TOP marginal rates) would be 5% on net takehome.

So your response is "none of the above"... thanks. I realized after the fact that I ought have added a "I don't live paycheck to paycheck so it does't affect my spending or lifestyle at all".

 

[middleview]

My current federal tax rate is 18%....are you talking about an increase to 23%?

So I make about $120k on just income from payroll. My fed taxes are 18% of the gross (not talking about SS or Medicare).

 

[degsme]

My current federal tax rate is 18%....are you talking about an increase to 23%?

So I make about $120k on just income from payroll. My fed taxes are 18% of the gross (not talking about SS or Medicare).

correct. an increase to 23%..

 

[ya-ta-hey]

NO I was talking about 5% increase in tax Rate - which if done across the board (notice I didn't say TOP marginal rates) would be 5% on net takehome.

So your response is "none of the above"... thanks. I realized after the fact that I ought have added a "I don't live paycheck to paycheck so it does't affect my spending or lifestyle at all".

Mr. D,

I know, you, as a liberal, are not versed in finance, nor the study of mathematics, for that matter, but your response was "reduce work rates by 5%." In doing so, you reduce your taxes, but you also reduce your net because your reduction in earning is more than your tax savings.

Seriously, do the math and you will see.

Bottom line, your rediculous analogy about supply side economics is just that, rediculous, as supply side calls for the reduction of barriers to earnings, not reducing earnings.

 

[PhilFish]

does SSE say there will be..or there may be..? depends on at what point it (taxes) becomes prohibitive... I imagine there is a disconnect because what is on paper..does not necessarily jibe with what occurs in reality....

 

[Patrick]

Actually, a 5% increase in taxes will be much more drastic than a 5% reduction in your take home pay. A 5% increase in taxes will be leveled against your gross pay, making it appear larger against your net.

Say you make 500/week.
And you're taxed at 20%.

So, your net is 400/week, because 20% of 500 is 100. 500-100=400.

Now, your taxes go up by 5%.

So, 25% of 500 is 125, so now your net is 375/week.

But if that 5% were taxed against your net, or take-home pay, your net would be 380 dollars, because 5% of 400 is 20, and 400-20 is 380.

So, if your gross pay is 1000/week, that's an additional $50 in taxes, which will seem like much more when measured against your net (or take-home) pay.

 

[degsme]

does SSE say there will be..or there may be..? depends on at what point it (taxes) becomes prohibitive... I imagine there is a disconnect because what is on paper..does not necessarily jibe with what occurs in reality....

SSE advocates claim that the Income Elasticity to taxes is above unity. IE that if taxes are dropped 1%, your willingness to work more goes up by more than 1%. And the point usually cited is the Reagan tax cuts after which taxable income increased.

Of course the failure there is the lack of tracking in the way the report I cited in another thead did for actually income changes on an individual basis. IOW just the broad increase in GDP, population and inflation offsets the Reagan tax increases and actually shows a loss of GDP productivity.


SSE predicts that as tax rates go up, there is a disincentive to work and thus GDP falls. They put the Laffer Curve plateau at somewhere around 10% tax rate... and the data simply doesn't support it, I'm trying to show this to folks by having them answer this question for their current circumstances.

 

[degsme]

Mr. D,

I know, you, as a liberal, are not versed in finance, nor the study of mathematics, for that matter, but your response was "reduce work rates by 5%." In doing so, you reduce your taxes, but you also reduce your net because your reduction in earning is more than your tax savings.

Yes... But that's not MY CLAIM... that's the claim of Supply Siders. That it is illogical has nothing to do with me... Read what I wrote not what you project.

And stop engaging in name callling.

Bottom line, your rediculous analogy about supply side economics is just that, rediculous, as supply side calls for the reduction of barriers to earnings, not reducing earnings.

What analogy. It is what Supply Side Economics claims. SSE claims that INcome Elasticity to Tax Rates is Greater than Unity. Thus an increase of 1% in tax rates results in a greater than 1% disincentive to work more.

Clearly this is nonsense, but that's what SSE claims.

 

[lupehernandezdepedajack]

Good Poll it will be interesting to see how it ends up....

 

[degsme]

Actually, a 5% increase in taxes will be much more drastic than a 5% reduction in your take home pay. A 5% increase in taxes will be leveled against your gross pay, making it appear larger against your net.

Say you make 500/week.
And you're taxed at 20%.

So, your net is 400/week, because 20% of 500 is 100. 500-100=400.

Now, your taxes go up by 5%.

So, 25% of 500 is 125, so now your net is 375/week.

But if that 5% were taxed against your net, or take-home pay, your net would be 380 dollars, because 5% of 400 is 20, and 400-20 is 380.

So, if your gross pay is 1000/week, that's an additional $50 in taxes, which will seem like much more when measured against your net (or take-home) pay.

Fair enough - but the questions on Polls are limited to 100 chars. and I didn't see any benefit from enumerating all the changes in net marginal rates.

For example if you currently pay 10%, a 5% increase appears as 50% jump in tax rates but only a 5.2% change in gross pay
vs.
if you currently pay 35% a 5% increase appears as a 14% jump in rates and a 7.7% change in gross pay....

So I rounded off a bit... you are technically correct, but I suspect you understand the meaning of the question.

 

[PhilFish]

if i recall...there was a net loss in gdp productivity overall (re: reagan) but the top tiers though reduced, resulted in significant gains in contribution to gdp.

that time also brought a significant increase in govt expenditure...rendering the ciphering of effect somewhat nebulous...

folks..in the example you cite...that of hourly..OT..etc...would likely incur a significant impact.. while others...as i think already pointed out in other responses..would feel little impact...

 

[middleview]

correct. an increase to 23%..

I'd have to see the math on that. Remember that I'm in the top tax bracket, but because of all of the deductions that brings is down to 18% of my gross. Increasing that, based on your reply, to 23% would be an actual increase of nearly 1/3rd of my Federal Taxes due. I'd doubt that would be the case....

I pay about $21,500 now and 23% would be an increase of $500 per month.