this post was submitted on 20 Jun 2024
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Depending on the tax system that is an actual issue.
Can you think of some tax systems where this is true? It's not true in the United States at least. https://en.m.wikipedia.org/wiki/Progressivity_in_United_States_income_tax
Its not the direct tax, it's the often counterproductive limits around welfare that many people receive alongside employment income. Welfare cliffs.
To give NZ as an example, a person can earn up to 37k and be eligible for a "community services card" which entitles them to discounts on a lot of things such as doctors fees, public transit and dental care. Earn just a dollar over thay threshold though, and you lose all the benefits, having to pay them out of pocket. Which means for someone on the cusp of eligibility, theyre often better off to turn down small pay raises.
The student allowance is similar but less punitive in that you are allowed to earn 270 per week without affecting your allowance, but after that, your allowance is reduced dollar for dollar up to the 360 per week of your allowance. A student working minimum wage would therefore need to get a 30 per hour payrise before their total income actually changed.
At least in the US there is no possible situation where you'd get less money for making more money.
I don't believe that's actually true. I think in the USA there are a few programs that have a hard cap on income to disqualify you. Food and housing assistance related things. I'm not American so I'm not 100% sure on them but I do think there are some scenarios
Oh yeah. That's absolutely the case for disability I believe. If you start to make a certain amount they just take away benefits. And the amount you have to make to lose benefits it's actually less money than what the benefits themselves are.
I know people personally who are affected by that situation.
Very good thing to point out and wasn't something I was thinking about. Thank you.
I guess it would be more accurate to say your paycheck from your job will never be less money due to making more money.
I'm sure there are cases but that's effectively a $4.80 / hour raise at full time, you'd need a lot of dependants or other assistance programs to make that not worth it if you're already working full time.
That's true. You'll still be making more money, but you'll also have more expenses. This doesn't apply to most people though, and for sure not ones getting a $10k raise. The progressive tax system we have only applies the tax as you progress through the levels. The first $10k will be taxed at one level, then the next bracket, then the next, etc. It's not done as one lump tax.
Different programs should be set up to slowly decrease how much you get instead of cutoff amounts. That'd remove that issue. Obviously some things are either on or off so they can't be done this way though. Ideally a lot of it should just be provided to everyone no matter what though.
Exactly, or that's how it was explained to me. Say you get a 10k raise from 94k to 104k and the next bracket is at 100k. If your old percent was 20% and the 100k bracket is 25% only the "extra" 4k would be traced at 25% and the 6k before that would be 20%.
Or so I've been told by smarter people than me. Numbers/ brackets and percentages are all made up to make it easier.
Midwest, US if it matters.