By Dr. James M. Dahle, WCI Founder
One of the most important principles of economics is that people respond to incentives. That makes it unfortunate that there are so many things in life that incentivize us to earn less money. These “perverse incentives” or “moral hazards” can result in lower tax revenues, fewer goods and services available, and less general prosperity. As a general rule, you incentivize what you want to see more of (classic examples in our economy are education and healthcare) and you tax what you want to see less of (tobacco and alcohol, for instance.) Since we tax income, that results in, you guessed it, less income.
However, there are far more incentives to make less money than just taxes. Today, let’s go through all of the ways we are incentivized to make less money.
#1 Lower Marginal Tax Rates
The most noticeable way that we