Hourly wage tax rate

[Mr Skeptic]

Maybe it's just me, but it seems wrong to me that someone who earns $20 per hour and 50 hours per week would get taxed as much as someone who $1000 per hour and 1 hour per week. Not just that it seems unfair, it also seems like a stupid move. The result would be that people are less likely to want to work more hours than if they were taxed at their hourly rate.

 

The only disadvantage that I can see is that it would be very difficult to find out how many hours of effort someone puts into their job.

[Pangloss]

I'm not sure I see why that's wrong.

[Severian]

I can see why he thinks it is wrong. Mr Skeptic is saying that it is the rate of earning which should be taxed, not the actual amount, since that is what determines your "earning power", and I sort of agree.

 

My problem with it would be the innate assumption that Mr $1000-an-hour could work for that rate all week if he wanted. There probably are jobs where you have to wait around for ever, and then get one big job which is over quickly but you still need to survive on for the week.

[Pangloss]

But why would that matter? The purpose of taxation is to generate revenue for the government, not to determine who's effort is more valuable.

[Mr Skeptic]

My problem with it would be the innate assumption that Mr $1000-an-hour could work for that rate all week if he wanted. There probably are jobs where you have to wait around for ever, and then get one big job which is over quickly but you still need to survive on for the week.

 

Yes, that is another problem. Perhaps it would be best to take into account both the hourly wage and the total earned. In your example, the time looking for new $1000-an-hour jobs would have to be included as part of his work, even though he doesn't get paid for it.

[Pangloss]

Your tax rate is determined by your annual income, not your hourly income.

 

I'm still not seeing a problem.

[ParanoiA]

But why would that matter? The purpose of taxation is to generate revenue for the government, not to determine who's effort is more valuable.

 

Maybe he thinks that earning power is a more appropirate method to fairly distribute the demand for this revenue?

 

Your tax rate is determined by your annual income, not your hourly income.

 

I'm still not seeing a problem.

 

Not paycheck to paycheck though. While it may not matter at the end of the year, it matters at the end of the day.

 

 

Maybe it's just me, but it seems wrong to me that someone who earns $20 per hour and 50 hours per week would get taxed as much as someone who $1000 per hour and 1 hour per week.

 

How about the notion of taxing labor at all? I'm not sure, but I've always assumed the implication of our income tax structure was about establishing the difference between capital secured for living expenses and capital profit, or gain, thus only taxing one's gain. If so, a selective sales tax would seem a better barometer for that.

[Mr Skeptic]

But why would that matter? The purpose of taxation is to generate revenue for the government, not to determine who's effort is more valuable.

 

And the purpose of the government is to work for the betterment of its constituency. Part of that is the economy. A tax system that increases the amount of work that people do is better than one that does not but generates as much revenue, because the former is fulfilling one of the government's roles in addition to funding them.

 

Your tax rate is determined by your annual income, not your hourly income.

 

I'm still not seeing a problem.

 

Then let me ask you this: Do you know someone who would turn down an increase in hourly wages? Do you know someone who would turn down additional work hours?

 

Taxing total income would discourage both seeking a promotion and working additional hours. Taxing hourly wages would not discourage working additional hours, and I'm pretty sure people would still like to get promoted even if it raises their taxes a little (so long as the increase in taxes is not greater than the increase in income, which would be stupid).

[Pangloss]

We CURRENTLY tax total income and I don't see anyone discouraged by that from seeking promotions or working additional hours to get ahead.

 

I think you're just trading one statistical glitch for another one. If a person only makes $1,000 in a given week and then nothing else for the year, then they shouldn't pay any taxes on that income at all, and under both systems they wouldn't, but under your system they'd have to apply for a refund. So how is that any better? It's better because the poor guy has to apply for a refund instead of the rich guy? It's better to have millions of additional refund returns to process? I'm not comprehending how that is better.

[Sisyphus]

I don't think that's feasible. It's too hard to calculate, too easy to cheat. What counts as "work?" Who's keeping track? Many (most?) jobs don't easily convert to hourly wages.

 

Also, the progressive tax rates, in my mind, are less about "fairness" and mroe about pragmatism: who can most easily afford to pay? In that light, what you've got at the end of the year is all that really matters.

[Saryctos]

So you wouldn't want more legos because you'd have to spend more time putting them together? When I worked in an automotive plant I saw people plenty eager to work more hours.

There's also the fact that even though wages are somewhat arbitrary, they're based off of some kind of demand. If someone works only 1 hour for 1k there's probably a good reason it's costing that much otherwise they wouldn't be getting paid. Time is the one true currency =P

[ParanoiA]

Taxing total income would discourage both seeking a promotion and working additional hours. Taxing hourly wages would not discourage working additional hours, and I'm pretty sure people would still like to get promoted even if it raises their taxes a little (so long as the increase in taxes is not greater than the increase in income, which would be stupid).

 

Maybe I'm just thick, but I'm not understanding the "discouragement". You always make more money, even if it's taxed at a higher rate. I don't know anyone that has turned down additional hours or a promotion or a raise because of the tax rate. Now, I can understand where it may be counterintuitive, but I'm not seeing how that causes a counterproductive consequence.

 

We CURRENTLY tax total income and I don't see anyone discouraged by that from seeking promotions or working additional hours to get ahead.

 

I agree, but why is overtime withheld at a higher rate? If we're taxing total income at the end of the year then I would expect withholding to be constant, no matter the hours.

[john5746]

I agree, but why is overtime withheld at a higher rate? If we're taxing total income at the end of the year then I would expect withholding to be constant, no matter the hours.

 

I think its more to do with the employer system. They withhold more on overtime due to the possibility of a higher tax bracket, while keeping normal checks at a constant rate. That way, if other things are equal, all employees are withheld at a similar rate for normal hours, but fluctuations in overtime are handled separately. But, it all comes out right in the end.

[D H]

Maybe it's just me, but it seems wrong to me that someone who earns $20 per hour and 50 hours per week would get taxed as much as someone who $1000 per hour and 1 hour per week.

 

Problem #1: What makes this "wrong"?

 

People who makes $1000/hour tend to work 60 hour weeks, or more. Actually, people who effectively make $1000/hour are not paid by the hour. They are paid a salary. So, here is one problem right off the bat:

 

Problem #2: How do you convert a salary to an hourly wage? Is the government going to tell employers that all exempt employees are now required to work a 40 hour (or 50 hour) week?

 

That $1000/hour corresponds roughly to a salary of $2 million/year. People who make even one twentieth of that salary typically do some work for free. For example, I occasionally charge my time to special charge codes designated "uncompensated overtime".

 

Some people are paid different rates for different jobs.

 

Problem #3: How do you figure in the time where someone works but is not paid?

 

 

Some people are paid different rates for different jobs.

 

Problem #4: How do you figure the hourly tax rate when the hourly rate varies?

 

 

Suppose one spouse makes the lion's share of a couple's income. The other spouse works 10 hours a week at $20/hour to augment the income a bit and spends another 60 hours per week raising two kiddos.

 

Problem #5: What if someone works fewer hours per week than the government deems "necessary"? Does 100% of their income (or more) go to taxes?

 

Bottom line: How could the government possibly tax at the hourly wage?

 

And the purpose of the government is to work for the betterment of its constituency.

A libertarian would say that the best way the government can do this is by not doing very much at all.

 

but why is overtime withheld at a higher rate? If we're taxing total income at the end of the year then I would expect withholding to be constant, no matter the hours.

Because we have a progressive tax system. Suppose you are paid 26 times per year (i.e., every other week). The formulae for computing taxes for a given pay period assume your annual income is 26 times your pay for the pay period in question. This coupled with your tax status and the number of deductions your claim determines your tax rate. This rate is applied to your pay.

 

Suppose on the other hand they computed a rate based on your nominal pay and suppose you work 50 hours of overtime for 48 weeks. You will have underpaid your taxes by a considerable amount because we have a progressive tax system.

[ParanoiA]

Suppose on the other hand they computed a rate based on your nominal pay and suppose you work 50 hours of overtime for 48 weeks. You will have underpaid your taxes by a considerable amount because we have a progressive tax system.

 

Yeah, good point. For those of us who only get occassional overtime it wouldn't matter much, but for those who work overtime regularly it could cause alot of grief.

[Mr Skeptic]

I don't think that's feasible. It's too hard to calculate, too easy to cheat. What counts as "work?" Who's keeping track? Many (most?) jobs don't easily convert to hourly wages.

 

Yes, that would be the biggest problem with my idea. It would be impossible to prevent cheating.

 

Maybe I'm just thick, but I'm not understanding the "discouragement". You always make more money, even if it's taxed at a higher rate. I don't know anyone that has turned down additional hours or a promotion or a raise because of the tax rate. Now, I can understand where it may be counterintuitive, but I'm not seeing how that causes a counterproductive consequence.

 

Because we have a progressive tax rate, the more you earn the more you get taxed. While you always get to keep more the more you earn, each additional dollar you earn gets taxed more. The effect is similar to instead of offering you overtime pay there were an overtime penalty, so that you earn slightly less than than you would if you did not work as much. So you are putting in as much additional time and effort but getting less money. At some point, people would not consider it worth their time to work at the (effectively) lower rate.

 

If people were taxed based on their hourly wages as opposed to total income, then there would be no penalty for working longer. So you could work 80 hours a week instead of 40 hours a week, and not be penalized for it by higher tax rates.

 

Problem #1: What makes this "wrong"?

 

People who makes $1000/hour tend to work 60 hour weeks, or more. Actually, people who effectively make $1000/hour are not paid by the hour. They are paid a salary. So, here is one problem right off the bat:

 

Problem #2: How do you convert a salary to an hourly wage? Is the government going to tell employers that all exempt employees are now required to work a 40 hour (or 50 hour) week?

 

That $1000/hour corresponds roughly to a salary of $2 million/year. People who make even one twentieth of that salary typically do some work for free. For example, I occasionally charge my time to special charge codes designated "uncompensated overtime".

 

Yes, the near impossibility of determining the hours worked could make this unfeasible.

 

Some people are paid different rates for different jobs.

 

Problem #3: How do you figure in the time where someone works but is not paid?

 

 

Some people are paid different rates for different jobs.

 

Problem #4: How do you figure the hourly tax rate when the hourly rate varies?

 

 

Suppose one spouse makes the lion's share of a couple's income. The other spouse works 10 hours a week at $20/hour to augment the income a bit and spends another 60 hours per week raising two kiddos.

 

It would be averaged. Divide amount earned by amount of time spent working for it. Also, jobs that require study or looking for jobs like consulting would have to count time spent studying as work time.

 

Problem #5: What if someone works fewer hours per week than the government deems "necessary"? Does 100% of their income (or more) go to taxes?

 

You must have misunderstood me. My suggestion was that the hourly wages would replace the yearly income for calculating tax rates. The only place hours worked would figure in is to calculate the hourly wages.

 

As someone else suggested, there would also have to be an adjustment for someone who earns at a large hourly rate but can't work many hours.

 

Bottom line: How could the government possibly tax at the hourly wage?

 

It would probably be impossible.

 

Or it could be saved for when the government has a camera in everyone's home and a GPS tracker implanted under your skin.

 

A libertarian would say that the best way the government can do this is by not doing very much at all.

 

I kind of agree with that. However, when I learned about externalities, I realized that there are some kinds of problems that would result naturally from the free market, and would require intrusive government to overcome (or they could be ignored).

[ParanoiA]

Because we have a progressive tax rate, the more you earn the more you get taxed. While you always get to keep more the more you earn, each additional dollar you earn gets taxed more. The effect is similar to instead of offering you overtime pay there were an overtime penalty, so that you earn slightly less than than you would if you did not work as much. So you are putting in as much additional time and effort but getting less money. At some point, people would not consider it worth their time to work at the (effectively) lower rate.

 

I see why we're talking past each other and why this hasn't sunk in for me: I'm assuming the increase in overtime pay of 150% of the hourly wage. So, where I'm coming from, even taxed at a higher rate you still make more per than regular time. If the net overtime pay resulted in less hourly wage than normal hours, then I could see your point.

 

That said, I guess I'm not sure about this overtime rule of time and a half, whether that's a law or just convention.

[bombus]

Ssshurely a system of annual tax rebates would work so that if you just happen to earn three times as much as usual in one week of the year, you would pay less tax on that one week than someone who earns that amount all the time?????

[padren]

Lets say I take a job that pays a good amount, that may be really stressful but I can get by modestly on say, 20hrs/week because I have my own projects I want to work on the rest of the time - maybe I am writing my own software or a book. Maybe I am taking college courses or just studying from technical manuals to improve my skills.

 

Should I be taxed as if I am earning twice the money I am actually making?

 

 

Personally, 95% of my work is per project based on a bid, I don't even keep track of my hours most of the time.

 

I can understand the underlying logic that the lower paid/more hours fellow is paying as much as someone that makes his income in a single hour, but I still don't really see that as unfair or even likely to occur.

 

Anyone who is making $1000/hr but only works one hour a week is not only a severe anomaly, but probably is only such due to other factors not being tracked that add up to unpaid time, or intermittent availability of that type of work.

 

Plus, you may want to factor in the sheer amount of time that (unless they are a reality tv celebrity) goes into training and such that puts a person in the position of making $1000/hr.

 

A lot of people who end up unemployed may take part time hours just to get them, and be rather destitute despite getting a decent rate of pay. While they may be trying to "move up" to full time it can be hard sometimes. Those sorts of people sound like exactly the type of people who should not have an extra helping of taxes dumped on them.

[Mr Skeptic]

I see why we're talking past each other and why this hasn't sunk in for me: I'm assuming the increase in overtime pay of 150% of the hourly wage. So, where I'm coming from, even taxed at a higher rate you still make more per than regular time. If the net overtime pay resulted in less hourly wage than normal hours, then I could see your point.

 

That said, I guess I'm not sure about this overtime rule of time and a half, whether that's a law or just convention.

 

Well, I wasn't taking account of overtime. Working more hours does not necessarily involve overtime. For example, someone who works 20 hour a week is not likely to get overtime pay even if he is given extra hours.

 

Anyone who is making $1000/hr but only works one hour a week is not only a severe anomaly, but probably is only such due to other factors not being tracked that add up to unpaid time, or intermittent availability of that type of work.

 

I guess I exaggerated a bit. However, it is fairly likely to have one person working 20 hours and another working 40, yet only making as much.

[D H]

I guess I exaggerated a bit. However, it is fairly likely to have one person working 20 hours and another working 40, yet only making as much.

Well, so what? It is not the government's job to decide which jobs are more important to society, or how many hours I must work to fulfill my obligation to society. That is essentially what you are advocating here.

 

The government is already far too invasive as it is. Letting them know how much I make on an annual basis already gives the government more insight into my personal business than I prefer. If I could make $1000/hour, I would gladly cut my work week down to half a day per week or so. (I would need to make considerably more than I do now to keep myself entertained with all of that extra free time.) It is not the government's job to tell people who can pull off such a stunt that they owe society a minimum of 20 hours per week.

 

Suppose your proposal becomes law. If I were one of the ones who could pull off the incredible stunt of making $1000/hour without working a 60-80 hour week, I would work a extra few hours a week and donate that extra money to political candidates far and wide to unseat those who pass Mr. Skeptic's proposal.

[Mr Skeptic]

Well, so what? It is not the government's job to decide which jobs are more important to society, or how many hours I must work to fulfill my obligation to society. That is essentially what you are advocating here.

 

No, it is not. What I am advocating is that the government should not punish people for working more.

 

The government is already far too invasive as it is. Letting them know how much I make on an annual basis already gives the government more insight into my personal business than I prefer.

 

That's true. Perhaps it should be optional then?

 

If I could make $1000/hour, I would gladly cut my work week down to half a day per week or so. (I would need to make considerably more than I do now to keep myself entertained with all of that extra free time.)

 

As would I. At least until I find a job I enjoy. But slacking off on work is bad for the economy, and yet it is encouraged by taxing the total earned, so that if you work less you are taxed less.

 

It is not the government's job to tell people who can pull off such a stunt that they owe society a minimum of 20 hours per week.

 

Again, I never said anything about how long someone should work. But can you explain to me why you are so insistent that someone who works more should be taxed at a higher rate than someone who doesn't?

 

Suppose your proposal becomes law. If I were one of the ones who could pull off the incredible stunt of making $1000/hour without working a 60-80 hour week, I would work a extra few hours a week and donate that extra money to political candidates far and wide to unseat those who pass Mr. Skeptic's proposal.

 

Perhaps you could devote some of that time to understanding what I am saying, as it is quite clear that you are confusing "not punishing" with "requiring".

[Pangloss]

I'm thinking I may need to put my foot down about threads that are started on false premises.

[padren]

I guess I exaggerated a bit. However, it is fairly likely to have one person working 20 hours and another working 40, yet only making as much.

 

Okay, but that doesn't address my other concern: I could work 20 hours a week, and spend the other 20 trying to: increase my skills, write a book, start a business... If I make as much money in 20 hours than someone who works 40, I probably had to work hard for that privilege, and I may have other endeavors than "slacking off" to take up the other 20.

 

If I want to write a book, do I have to officially start a company for it, and log the hours I put into it at $0 pay, to offset how your plan would punish me?

 

* I know you say it's not "punishing me" but "stops punishing mr 40/hr/week" but you are really shifting the tax burden, and either that shifts to me, or we have less money for our federal infrastructure than I would get for my taxes otherwise, so it does end up "hurting me" personally.

 

If I can meet the demands of a high end professional job, allowing me to work 20 or even 10 hours a week and get by modestly so I can get 10-30 hours to dedicate to writing a book, why should I be taxed as if I am living with the means of someone with 2-4 times my income has?

 

If I make the choice to live lean, that hurts enough, and I don't spend the spare time "slacking off" either. I put it into personal projects that are a gamble, but I feel are worth it. I just think your idea fails to account for that sort of situation.

[Mr Skeptic]

I'm thinking I may need to put my foot down about threads that are started on false premises.

 

There's no false premises.

 

However, it does seem like the idea would be too impractical to put into practice anyways, as others have noted.