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How Tax Policy Drives Quirky Compensation July 24, 2014

Posted by federalist in Taxation.
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In some European countries tax rates are so high that there are vibrant parallel “black-market” economies.

But you don’t have to go to the Old World to see this. Distortions of healthcare markets by the tax code are something with which most Americans are familiar.

California has treated us to some more salient examples:

Even moderate income families in California can face marginal tax rates that approach 50%. When an employer tries to pay a worker one more dollar, the employee takes home slightly more than 50 cents. Most employee benefits, however, are tax free. That means that the benefit could be worth half its cost and still be a good deal for the employees.