No. of Recommendations: 1
That's weird. It's almost as if high taxes reduce the incentive to work and start businesses.


I would say it depends on the facts and circumstances. What the tax code does for sure is introduce distortions in the market, and often it is unintended distortions.

Take my DW, for example. A decade ago she quit full time work. We had moved to the burbs and were planning to start a family. DW has two master's degrees from a top shelf university and is highly employable, but I earned more and all her income was effectovely at a high marginal tax rate. So what did she do? Chiefly she chases the kids, but she started a sole proprietorship as well. This allowed her to keep her skills sharp and have some adult contact. It is also highly favored by the tax code. We pass on a variety of potential deductions (home office, etc.) because they are audit flags and could potentially be disallowed according to the letter of the law. Instead, we just use a solo 401k to shelter all of her net income. She pays the self employment taxes and ducks all of the federal and state income taxes without a fuss. So long as she does not earn more than she can shelter (about 23.5k next year), the income will be extremely lightly taxed. Would she so limit herself if the tax code were otherwise? Hard to say, but there would certainly be an incentive to make more if her effective tax rate did not go from 15% to close to 50% once she crossed a seemingly arbitrary income level. OTOH, you could argue that this quirk of the tax code was a strong incentive for her to start her business.

Regardless of where tax rates fall, I think this is a strong case for simplification of the tax code.
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