Todd Zywicki analyzes the two-income trap hypothesis.
Comparing a typical family with one wage earner in 1973 with a typical family with two wage earners in the 2000s, he finds that the second wage earner pushes the family into a higher marginal tax bracket.
[Since 1973] taxes increase in the example by $13,086. By contrast, annual mortgage obligations increased by only $3690 and automobile obligations by $2860 and health insurance $620. Those increases are not trivial, but they are swamped by the increase in tax obligations. To put this in perspective, the increase in tax obligations is over three times as large as the increase in the mortgage (the supposed driver of the 'two income trap') and about double the increase in the combined obligations of mortgage and automobile payments
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Overall, the typical family in the 2000s pays substantially more in taxes than in their mortgage, automobile expenses, and health insurance costs combined. And the growth in the tax obligation between the two periods is substantially greater the growth in mortgage, automobile expenses, and health insurance costs combined."
via Instapundit
I'm all about lower taxes and smaller government, but the numbers in this particular example are wrong.
Zywicki cites Warren & Tyagi's numerical example, but they have no source for the 24% tax take in 1973 or the 33% tax take in 2000. My diagnosis is that Warren & Tyagi confused average tax rates and marginal tax rates.
What would the marginal rate have to be in order for tax payments to rise to 33% of income? Husband was earning $39K, and say that some new tax bracket kicks in at $40K, so *all* the wife's income is taxed at the higher rate. They say that the wife increased family pre-tax income by 67%, so she must have added $26K, for a total of $65K pretax. 33% of that is $22K. Find X:
($39K)(.25) + ($26K)(X) = $22K
X = .47
No individual or family was paying a marginal tax rate of 47% in 2000.
Bottom line: Warren & Tyagi confused average and marginal rates, pulled the 33% figure out of their ears, and then Zywicki accepted the figures uncritically.
Patrick
I defer to your math and thank you for your correction.
Only one question. Do you think they added in the social security tax and that bumped up the overall tax burdern?