An example from Belgium. Imagine you're an employee and earning 38k€ a year including bonuses. Now you want to start a side activity as an independent contractor. You pay about 53.5% of taxes on this amount. On what is left after taxation, you pay 20.5% social contributions that you get literally nothing in return for. If you choose the cheapest "social contributions" provider. That means you get to keep about 36.96€ for every 100€ in pretax profit.

Don't you think this steers people in different directions?

It really depends on where on the range of earnings you are. In Germany earning minimum wage nets you virtually the same amount of money as being chronically unemployed (when taking into account various benefits, like social housing and free transit for the unemployed).

And the benefits are regular and safe relative to a lot of badly paid work opportunities (especially they are not a regular full time job).

I don't think this makes as much sense as e.g. a programmer earning €50k/year vs €80k (especially if you're married with kids, which gives you huge tax deductions here).

Sure, earning money is nice, but consider this: you are just throwing 30-50% of your income away. When increase of 100% means 200% more effort, because you're throwing away 50%, you really start considering if the effort's worth it.

Also, at least where I live, we have our benefits capped. So I pay taxes proportionally to my income, but god forbid I get sick, get in accident, lose my job or have a child and take a child rearing leave - even though I've been paying full taxes >10 years, i get instant income cut by 50%. And don't get me started about pension - currently it's set at 75 years for males - and average lifespan is about 70...

So, to sum up, while earning more money, sure, is nice, but throwing the money you've earned fair and square down the drain to support society which will simply not support you is disheartening to say the least.