Higher taxes make people want to work less, why?

Question

I have read this on several conservative web sites, but don't understand the logic. I can TOTALLY understand people not wanting to have to pay more taxes, but the working less argument baffles me. I make a fairly decent amount of money, but if my taxes went up, I'd HAVE TO get another job if I want to to keep up my lifestyle and savings amounts, etc. But, maybe it's different for the super rich? Maybe you can tell me.

Answer 1

For this concept, there are three types of people. Those that HAVE to work, and those that DONT HAVE to work, and those that can DEFER their income.

Those that have to work, have to work, no matter what the tax rate is. No effect.

Those that working is an option, that have enough stashed away, can be influenced by tax rate. It isn't always an absolute; some work and don't care how much they get to keep. Some do care, and will ":retire" if the working atmosphere is wrong. Also, if they perceive the tax rate to be "unfair," they retire.

Those that have a corporation or similar and can declare when they receive profits, or those with enough investments to pay living expenses, will not receive as much profits during "high tax" years, instead keep them invested. They also have an effect on tax collection, but a lessor one (because they tend to be frugal).

Raising taxes rarely brings in as much as a straight-line mathematician would think because of this. Some people, yes, a small number of people, stop working. That may be a small number of people, but it has a much larger effect on taxes collected, since high earners pay disproportionally more taxes.

Complicated, yes.  

Answer 2

The keywords in your question are "want to work less". I think you are mixing two different ideas of having to work more to maintain the same lifestyle and the desire to work.

Judy is correct in saying the less net pay the less the incentive there is to work.

I am fairly sure that the websites are talking about exactly what you have said...if you want to maintain your lifestyle you'd have to get another job. I am sure that you do not want to do that. Otherwise, you would have already done it regardless of the money.

The same principle applies...the happiness factor goes down if you are working just as hard or harder and still can afford less.

Hope this helps

Answer 3

There's less incentive to work if you are going to make less since you'd pay out more in taxes.

Answer 4

After you hit $100,000 of earned income, the fica drops off, so there is a slight gravy factor from wages above $100,000.

But look at the tax return simply from income taxes.  If I'm in the 15% tax  bracket, the next dollar I make gets me 85 cents net.  If I cross over to the 25% tax bracket, the next dollar only gets me 75cents.  (Actually it gets me even less due to "phaseouts.")

Back in the recent years when the marginal rate was 70%, getting an offer of $10,000 more of income by squeezing in one more project in December that $10K would get you $3K. (Less if you owed state income taxesor were semi-retired and each additional dollar reduced your SSA benefits.)  If you have paid your bills, your interest level in working isn't always there.  

Answer 5

It is one of the core economic theories of the right wing but, as with most of their theories, it doesn't fit reality.

Bill O'Reilly once announced on the Daily Show that if taxes went back up to where they were under Bill Clinton, he would retire.  He said it wouldn't be worth working.  Of course, this is a crock of sh*t.  No one is going to work less because their tax bracket went from 25% to 28% or from 35% to 38%.