Saturday, April 1, 2023

California taxes almost eliminate he incentive to invest in education or training

MarginalRevolution reports on California's tax rates:
  • If a single parent of two in California earns $10k, the parent takes home $38k after taxes (an income subsidy or negative income tax).
  • If the same single parent were to earn $50k, the parent would take home $49k. 

Since "how much to work" is an extent decision, we use marginal analysis.  If the parent earns an extra $40K, the parent pays an extra $29K in taxes, a marginal tax rate of 73%=29/40.  In other words for every $1 earned between 10K and 50K, a single parent keeps only 27¢.  

  • ...And that's without childcare and housing subsidies!  (including them would further weaken the incentive to invest in human capital)

Bottom line: progressive taxes almost eliminate the incentive to invest in education or training.  


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