How to Slash Your Taxes

Writing for, Alan Reynolds provides an elegant analysis of how taxation influences one’s motivation to work. From his article:

I have discovered a fool-proof strategy for beating the income tax, the Social Security tax and the Medicare tax: Lower your income.

After analyzing his own (tongue-in-cheek?) experiences with this strategy, he concludes:

The sensible solution is to stop working at 62-65, or to work as little as possible — like running a 12-cylinder engine on 4 cylinders. Yet this is a dangerous message to send to our rapidly aging population. Future growth of tax revenues, and of the economy, will be heavily dependent on whether or not older Americans choose leisure over work.
Between 2000 and 2020, the population between the ages of 25 and 54 is projected to increase by only 3 percent while the population over 55 increases by 63 percent. If older people shun work, there will be virtually no growth in the labor force aside from immigration. America’s medium-term challenge is not a shortage of jobs but a prospective shortage of willing and able workers.
Even if only a fraction of future seniors respond in the ways I have to tax penalties on work, money flowing into the Treasury, Social Security and Medicare from an aging workforce will slow even more than expected.
A few years ago, the Russell Sage Foundation (which routinely bankrolls egalitarians) sponsored a collection of papers turning Ayn Rand’s opus into a question, “Does Atlas Shrug?” The authors could not get the right answers because they did not ask the right questions. Work effort cannot be measured by hours on the job. Work effort is more like a dimmer switch than a light switch; we adjust it by degrees. And mature, educated taxpayers are not docile sheep but wily foxes. When tax collectors set out to punish extra effort and investment, we get the message.

See the full article for additional information.