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Great Incentives


Eighteen months after being laid off, Judith Lederman, a 50-year-old divorcee who lives in Scarsdale, N.Y., is ready to consider jobs paying half the $120,000 she earned as a publicity manager at Lord & Taylor. That's mostly because she's desperate, but it also makes sense when you consider how this country punishes work effort. While the first $60,000 of her income would be lightly taxed, the next $60,000 would be hit with what is in effect a 79% tax rate.

Damn. I certainly would not work at that marginal rate.


Mike T

The article is not entirely honest. A lot of the "tax rate" issues are just the fact that these people will lose tax benefits if they reach a certain level of income. That isn't fair, but it's not accurate to say that the woman in that example is getting a 79% tax rate on her income over $60k. Rather, she's simultaneously seeing a modest increase in her tax rate (from about 28% total to probably around 35-39% going between 60k and 120k).

But... mortgage interest, property taxes, state income taxes, health care costs and 401k contributions can be written off almost with impunity until you reach about $150k in income. Even then, IIRC, 401k contributions still count, plus at the age of 50 she is entitled to up her 401k contributions from the $16.5k that people my age (26) can do, to around $22.5k.

As I said, it's certainly not fair, but it's not like she's being taxed at Swedish levels ;)

Mike T

I'll also add that any family that makes less than $200-$250k/year SHOULD NOT be sending their kid to a university that costs more than $20k/year for all expenses, unless their kid is incredibly talented and it's a special case like sending them to a private university for specialized engineering or medical instruction. I have no pity for a family that can't send its kids off to $30k-$40k private universities to study English Lit or Political Science. Even with a 10% flat tax, they'd be hard-pressed to pay for that sort of thing responsibly.

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