The Bonus Tax Is Just Plain Stupid
If we ignore the politics that drive the strong opinions on both sides of the AIG Bonus Tax for a minute and focus on how this new tax skews people’s work incentives, perhaps we can come to an agreement that this solution that was rushed through the House last week is just downright stupid. I’ll let the WSJ explain.
A 90% tax is downright stupid, creating bizarre disincentives. Exhibit A? That would be me. Once my total income hits $250,000 for the current calendar year, I will have no incentive to work a single day more in 2009. After all, for every extra dollar of income I earn above $250,000, I will lose 90 cents of the bonus I received earlier this year.
Being somewhat knowledgeable about personal finance, I’m trying to figure out how to finagle this. By minimizing my investment income in 2009 and pushing other income into 2010, I reckon I can delay the day of tax reckoning. But even with that finagling, by mid-October, I will hit $250,000 in total income — and have no incentive to earn any more income in 2009.
At that point, I plan to ask Citi for an unpaid sabbatical. Forget earning more income. There’s no point. Instead, you will find me hunkered down at home, desperately trying not to spend money. This will make entire financial sense for the Clements household. What about the struggling economy? Not so much.
Brad, can you find the total number of people this “Super Tax” is affecting?
Michael,
See this article: http://www.factcheck.org/askfactcheck/what_percentage_of_the_us_population_makes.html
Basics:
- “Those reporting adjusted gross income of more than $250,000 to the IRS are projected to make up 2 percent of households [in 2009].” – “Those folks will earn 24.1 percent of all income, and pay 43.6 percent of all personal federal income taxes”
Keep in mind that the 43.6% they are already paying will clearly sky-rocket with a 90% tax.
Now, the current bill only effects those that work for government aided companies. So clearly the 2% mark is not accurate, but the numbers regarding how much money they already pay in taxes certainly is.