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Comment by madsbuch | Hacker News Reader

It is quite interesting to calculate the true cost of doing things itself.

In Denmark the tax system is such that if you subcontract out of personal money they need to be 5 times fast than you.

If we say that you can make your deck in half the time a professional would have don it, the factor is still 2.5x.

Ig. assuming a contractor would do it for 50 USD/h, this would translate to "making" 125 USD on hour by doing it yourself, 250 USD/h if you know what you are doing.

Obviously these things change with tax regimes.

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I have the same thing, I feel these high income taxes force me to do repairs and home improvement myself because the converted hourly is higher than my own generous contracting rate.

That is what taxes on trade do, they make trade more expensive. This is why income taxes are counterproductive but they are easy to calculate and enforce so governments rely on them.

Relevant: https://www.lesswrong.com/posts/ZpDnRCeef2CLEFeKM/money-the-...

(Also discussed recently on HN.)

I'd like to see the math for your calculations here, I suspect something is a bit iffy. As an example I'll use Swedish taxes which should be comparable to Danish ones.

If we assume I'm a contractor charging $100 per hour and take the cash as salary:

(100/1.3142) * 0.5 = $38 left after payroll tax and the top income tax rate (50%).

So if I'm just as fast and good as a professional, the professional needs to charge $38 per hour or less for it to be worth it. But in reality, a professional is probably at least 2x as fast as me, making it $76. That's probably less than they charge, so it's worth paying for a professional.

The person you contract also pays income tax on the amount. So you need to doubly add the tax.

Then you also need to add some cost of doing business.

Said in another way: The 100SEK you earn becomes 25SEK the contract can use (assuming 50% tax rate) – that's the first factor of 4. The last factor can be found in the details.

I think that's a logical error; I don't care about how much the contractor makes after tax, I only care what the cost to me is.

After all, if the contractor had some strange anomaly where he pays 100% of his income in tax, why would that matter to you?

On the contrary: My initial statement had nothing to do with price negotiation. All I was trying to assert was how the tax implications are when you do something yourself vs. when you subcontract.

Do it yourself: Miss out on that hours worth of salary

Subcontract: 2 times tax is paid.

Obviously this has implications on negotiation. This is exactly the reason why services are considered very expensive in the Nordics (as in 80USD to get your hair cut).

Note that this needs to be compared with a company getting their stuff fixed. Their contractor costs are fully deducted from their income.

The contractors tax situation is irrelevant to you. The only thing that matters is income vs expenditure. Or in this situation, "how many hours do I have to work to pay the contractor's hourly fee?" and "how much faster is the contractor?". The tax stuff are just details around this.

In my example, a contractor who's twice as fast needs to cost $76 or less per hour . Thrice as fast is $114 or less.

You're right in principle though, just not on that calculation. In Sweden we have tax deductions for private citizens exactly to combat this issue: up to a certain amount per year can be deducted from your income, just like a company can, for certain services (such as cleaning or house repairs).

This is a clever observation thats poorly phrased.

Are there tax implications to doing the work? I don’t understand the need to do the caculation.

No, but you pay an average of 40% income tax, 25% VAT, 150% on cars (+ 25% VAT) and the European gasoline tax. The result is that the tax system disincentivizes these types of transactions when you can not deduct the costs in your personal tax bill.

Said in another way: you don't pay income tax when you paint your own house.

Got it the formula is to figure out the tax reduction for doing one's own labor at an established rate.

This is interesting, do you have some resources on this? (Sorry, I am just a computer scientist with an interest in economics, so I don't know the established theories)

My outsider view is the desire to account for all labor output. If the labor of painting one's own house goes un-accounted for it distorts the view of the current state of the economy.

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