Monday, February 07, 2011

Real world supply-side economics

The other day my girlfriend, a pediatric physical therapist, was doing her taxes when she announced she would be either be cutting back substantially or ending entirely her practice of seeing private clients (she usually does this once a week for patients she sees at her hospital job whose parents want more than just the one appointment per week they are allowed and prefer someone they already know and trust).

When this freelance money was added to the wages from her regular job she estimated the tax rate on this extra income was 20 percent (based on this tax table it was probably 25 percent) -- a sufficiently large financial hit that treating her patients was no longer worth her time. Intrigued to hear this Obama voter railing against the burden of federal taxation, I asked if she would be willing to keep working if the tax rate was 10 percent. She responded in the affirmative.

Hello, tax wedge.

    1 comment:

    Anonymous said...

    And if you are married with a joint federal tax rate of 25%, then add in state taxes, possible loss of deductions due to higher tax bracket, additional schedule C-EZ and schedule SE requirements, resulting added FICA taxes, and your spouse may decide it is not worth it to work at all.