01-09-2017, 01:00 AM
(12-17-2016, 07:58 AM)Mikebert Wrote:Warren Dew Wrote:Suppose the plumber is in a 35% marginal tax bracket, state plus federal. He charges $100 per hour, and takes home $65 per hour.
The proposal is to cut tax rates at all brackets. If the marginal tax rate is being cut by three-sevenths so are the lower rates. So I will treat the tax cut as being applied to average tax rates.
So working 2000 hrs a year he grosses 200K and keeps 130K under the current system.
Quote:Now reduce his marginal tax rate to 20%.
Now his take home is 160K
You're making several incorrect assumptions there. This case can still be illustrated assuming cuts to a flat (not average) income tax rate, somewhat as you suppose, and your rather high number for billable hours, but it's hard to accept that you're arguing in good faith when you set up so many straw men.
Quote:Quote:Now he can charge $90 per hour - less than before - while taking home $72 per hour
This gives him a take home income of 144K. Why would he take a 16K pay cut for the same work?
He's not taking a pay cut. He's bidding on work from me, which I won't pay $100 per hour for. He does not - initially - cut the rate for his existing customers. And in fact, plumbers have many different categories of customers and charge them different rates, though in this case we just have to realize that bids on new business may be different than rates on existing business.
Of course, because of the competitive free market, other plumbers can now make money undercutting his rates on his existing customers, too. So the equilibrium rate will be less than $100/hour, but more than $80/hour. The equilibrium average rate will still be in the range of $90/hour, just as in my original example.
The only way the plumber could keep his average rate at $100/hour is by forming a cartel with all other plumbers and agreeing not to undercut each other. That's illegal, not to mention unrealistic.
Quote:Quote:With a 10% discount, I have an incentive finally to hire him to do the bathroom work I've been putting off.
Yeah sure, but where’s his incentive?
The error you are making ...
Hopefully you can now see that the error was not mine. I was merely trying to illustrate the equilibrium economics equations with an example.
I might at most have been making an error in assuming that you would understand that the illustrative example was representative of market economics operating to come to a new equilibrium in a competitive many plumber, many customer situation.