Friday, April 28, 2023

Unmotivating progressive income taxation

In Finland you pay taxes progressively based on your income level. The more you earn the bigger tax percentage. Progressive taxes are considered fair but unmotivating for high earners to work extra hours. For example in health care sector high earning doctors do not need to work full time to make decent living and many doctors prefer to decrease working hours when their income gets high enough. But in the same time nurses are complaining about their low salary. For example Helsingin Sanomat published an article about a couple who both are nurses and how they are unhappy about their  income level in Helsinki. A nurse might get paid 2 500 EUR/month in gross. which means 2 000 EUR/month net salary. In Finland you can reach the top 20 % earning level with 5 000 EUR/month gross salary which means net salary 3 300 EUR/month (Iltasanomat 2021). Basically if you are a household where both are earning below average salary you're doing financially better than a household with a single top 20 % earner. Though if the top 20 % earner lives with a job seeking unemployed person the job seeking person gets social benefits which are about 500 EUR/month. In conclusion the progressive taxation keeps the income gap between the working people small.