A lot of what I see happening today is just plain stupid – and sometimes even dangerous.
Just this past week, I observed a news story while I was in my hotel room preparing for a speech. The story was about a Michigan day care regulator who was taking enforcement action against a woman who agreed to watch her neighbor’s child. Where I live, that’s simply a neighbor helping a neighbor. But this regulator sees it differently. According to her, if the neighbor was rendering daycare services for a period longer than a half an hour, a license to provide such services was required. Consequently, according to this regulator, the neighbor was providing day care services without being properly licensed.
In this week’s “Forbes” magazine (October 5, 2009) there is an article containing a story about Judith Lederman, a 50-year old single parent who after being laid off from her job at Lord and Taylor as a publicity manager earning $120,000 per year, is now looking at less demanding jobs that pay only $60,000 per year partially because she’s desperate for work but partially because if she took another job earning $120,000 per year, she’d forfeit 79% of the additional $60,000 in income.
How can that be? Is there now a 79% tax bracket?
Not if you read the tax code. But you can get to that level if you consider all of the other government programs our “hair-brained” politicians have conceived over the years.
So, given a choice between a part-time, easy job at $60,000 and a high demanding job at $120,000, Judith is choosing the former.
Here are the additional calculations made in the “Forbes” article to get to a 79% tax rate that might be better described as an income forfeiture rate. At $120,000 in income, Judith would pay an additional $16,500 in federal and state taxes. She would also not qualify for the 5-year, $12,000 per year cut in her mortgage payments that she’s applied for and would be eligible for $19,000 per year less in need-based college financial aid, a fact that she’s very concerned about given she has a daughter who is a senior in high school.
Do the math.
$16,500 + $12,000 + $19,000 = $47,500
Judith keeps only $12,500 of the additional $60,000 that she’d earn. That truly is working for nothing and it’s a really dumb policy. By taking the easier job Judith gets more time and a similar financial outcome due to government policy.
When the incentive to work is removed, bad things are likely to happen.
Too bad I see them happening.
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