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Comment by dionidium | Hacker News Reader

I think it's a failure at root to understand how marginal tax rates work. There is an honest-to-god, widespread folk mythology about how you can actually earn less by earning more, because you'll pay a higher tax rate. You can hear this opinion expressed by people of all intelligence levels and in all professions, from fry cooks to engineers.

This, in my experience, drives a lot of insane opinions about taxes.

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US tax code is a strange animal. While in general you take home more if you earn more, the curve is not always smooth. There are several spot you suddenly lose the ability to claim certain benefit as income increase. In a situation like that you could take home slightly less as your income increase. If your income is high enough, those doesn't apply to you. All you need to worry about it the different tax bracket.

Very very few things being claimed by the average person fall off immediately, almost all of them scale such that you are still netting an increase, even if that increase is less pronounced.

In fact, I can't think of a thing where this isn't the case. Can you provide an example?

All of the people who would get jobs if it wouldn't cut them off of their free/cheap housing and food stamps? You either qualify for subsidized housing or you don't (at least in my state).

> the curve is not always smooth

THIS

If the tax code was easily understood, these steep/jagged areas of the tax curve wouldn't exist. Even my accountant seems to struggle with the amount of variables when I ask similar questions.

Yes. This is absolutely a big problem. The incentives are all wrong here. But that's not really what we're talking about. We're talking about working people who aren't receiving any additional government assistance not understanding marginal tax rates.

I still remember a HS teacher insisting that because she got a raise she took less money home. A friend of mine was the son of a CPA and all but called her a liar in the middle of class.

Sadly, this is a conversation I've had several times.

I was one of those people who didn't understand it enough to think that an increase once you got to a new bracket applied to all your income. In that situation, it's logical to be careful not to move to the next tax bracket accidentally. It wasn't until later that I understood that the bracket applies only to the amount of your income that is above the bracket amount. I think it's a common assumption to make if you don't research it more carefully.

This myth is probably fed by employers who don't want to give raises as well.

"Well if I give you a raise, you won't get more money! Get back to work!"

In my case it was true, because I became ineligible for overtime.

But it is true that the marginal earnings decrease. If I suddenly am making less on the margin for working more, that might be enough to tip the decision to "not worth it."

But from experience in the UK where there are some points in the tax scale that have odd high marginal rates (about £110k I think) but if you in that rage your employer normally pays you enough to jump over that band and you can do salary sacrifice or extra payments into a pension for some juicy tax benefits also EIS's and VCT's come into play at that level.

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