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by robjan
2134 days ago
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Where's the incentive to fiddle your taxes? Yes you can donate your money to bring yourself into a lower tax band but you will still never have more in your bank account by doing so. e.g if there is a system where tax is 10% then it goes up to 20% at a $100 income. If I earn 99 then my take home is 89.1 (99 * 0.9) if I earn 101 then my take home is 90.8 (100 * 0.9 + 1 * 0.8). Yes, the effective tax rate is higher but I can never take home more by deliberately earning less money. |
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Your calculations was right in that idealistic tax system, but the real world is really messy with lots of exceptions, Tax credits, Benefits, and such.
Building on your example, I will add a little Child Benefit to make a slightly less ideal idealistic-scenario.
Assume If earning < 100: child_credit = 3
Assume 1 Child
If earning 99: take_home = (99 * 0.9) + 3 = 92.1
If earning 100: take_home = (100 * 0.9 + 1 * 0.8) = 90.8
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I chose this example because I remember vividly a story about a family in the UK that avoided getting promoted because their take-home would decrease. Of course it have to be a very small promotion in order to not be worth it. I don't know if cases like this is rare in the US, but it is generally a thing.