Tuesday, March 6, 2018

Taxation : Equal Pay for Equal Work

According to Leftists, equal pay for equal work is a basic principle, particularly when they discuss the pay gap between men and women. Today, however, we're discussing how progressive income tax violates this principle.

Suppose you have two individuals. Let's say they're lawyers and make a fairly steady income. For the ease of calculation, let's say they both make roughly $100 an hour. And for the sake of our conversation, we'll say their work is of an equal caliber. 

Let us also suppose we have a country with three tax rates: 

A: 0% for people making $29,999 or under a year.
B: 15% for people making between $30,000 and $49,999 a year. 
C: 20% for individuals making more than $50,000.

As I mentioned in a previous post, progressive taxation is inherently discriminatory because the difference between an individual making $29,999 and $30,000 is arbitrary. Why is it justifiable to take 15 cents away from the latter and not the former? 

But that's not the question we're considering at present. Suppose one of our lawyers has had a bit of luck. He's been working for a few years, but he's mother went and did a very nice thing. Soon after he was born, his mother purchased a deferred annuity for her son, and she has dutifully been making the payments ever since. The annuity has been accumulating for 30 years. Now it has finally started distributing. It pays $3,000 a month. 

What will our lawyer do now that's he's making an extra $33,000 a year?

Let's suppose he made $20,000 from lawyering, working a mere 200 hours a year. He now stands to make $53,000 a year, putting him in the top tax rate. Will he continue to work those 200 hours? Perhaps. Perhaps not. 

What we do know is this. If our lawyer decides to work even a single hour, charging his normal rate, he'll take home only $85. Compared to the $100 the other lawyer will take home. Is this fair? It certainly isn't. But maybe you don't care for fairness. I can't say I blame you. 

How does this action harm the wider community? It can harm the wider community in one of two ways:
  1. The lawyers aren't equally competent. The lawyer with the annuity offers a superior service. Because of his increase in income, he cuts back on his hours. This harms the entire community. His former clients get into legal complications. Trails take longer.
  2. The lawyer with the annuity curs back his hours, and the one lawyer left in the game raises his rates. 
By introducing a progressive income tax, we inevitably distort prices, which have repercussion for society as a whole. 

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