Having a progressive tax system means tax rate increases disproportionately with the more work you do. And that’s a good because working less is encouraged by a reduced avg tax rate.

But what happens when you take a year (or 5 years) off? You live off savings that were taxed in higher brackets while earning zero. IOW, consider:

  • Bob works 6 years straight earning 50k/year.
  • Alice works 3 years earning 100k/year then takes 3 years off.

They both had the same gross earnings per unit time but Alice gets screwed on taxes because of the progressive tax system. My pattern is comparable to Alice due to forced full-time gigs that refuse part-time. My refuge is to subject myself to being over-employed for a stretch then quitting for a stretch of bench time. The only remedies I see:

  1. Take a 1-year contract starting in June. Do not work the first ½ of the 1st year, and do not work the second ½ of the 2nd year.
  2. Form a corporation, work as independent and direct your own “false independent” 1-person company. Money builds in the company as you pay yourself the same amount whether you are working or not. (Some people put the company in Hong Kong because it accommodates this well and the company feeds the director gradually and persists well after retirement – or so I’m told)
  3. Work in a country that adjusts for income fluxuations by giving you a tax credit if your income drops substantially from one year to the next.

I made up number 3. Does that exist anywhere?

Any other techniques to hack around forced full-time scenarios? Or to deliberately fluxuate working hard and not working without the tax penalty?

  • MrMakabar@slrpnk.netEnglish
    2·
    16 days ago

    There are some models for sabaticals, like lower pay and then basically a year of paid vacation. It also includes insurance policies, as there is an obvious incentive to just fire you before you take the time off.

    Also especially for long timeframes, consider FIRE. With a 50% savings rate it takes something like 16.6 years to retire. The idea is to invest into index funds and then live of the income they make aka become a capitalist. However I get why some people might not like that, but especially if you have some wealth from other source that might be a pretty great option. Also the 16.6 years use 4% save withdrawal rate, which has historically worked well, but if you are willing to return to work and take some risk higher withdrawal rates can work as well.

    However companies do not like employees having wealth. It makes them independent and that means negotiating power. So most options probably do not work.

    • activistPnk@slrpnk.netOPEnglish
      12·
      16 days ago

      There are some models for sabaticals, like lower pay and then basically a year of paid vacation. It also includes insurance policies, as there is an obvious incentive to just fire you before you take the time off.

      None of my employers have offered that. Colleagues would take a sabatical but I think it must have been uncompensated – just an understanding that the gig was held for them. Is there a particular region where this arrangement is common? If it’s just 1 year off every 7 years, that’d be useful but doesn’t match up to my pattern of working about ½ time on avg (1yr on, 1yr off, 1yr on, 1yr off, 6 on, 6 off, etc).

      • MrMakabar@slrpnk.netEnglish
        1·
        16 days ago

        I know some German unions have managed to have it as part of the agreements they have with some companies and also the German government(as in people working for the German government). However it is rarely used.