Taxes and the Two-Income Trap
By Arnold Kling
In turns out that for the 1970s family, paying 24% of its income in taxes works out to be $9,288. And for the 2000s family, paying 33% of its income (a higher rate presumably because of progressivity hitting the second wage-earners income) in taxes works out to be $22,374.
Thus, 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.
Indeed, because of this huge increase in the tax bite, the percentage of family income dedicated to payments for health insurance, mortgage, and automobiles actually fell between the two periods.
He doesn’t even mention payroll taxes. Note also that the effect of payroll taxes on take-home pay is somewhat hidden by the fact that employers pay half the tax, although the incidence is thought to fall on labor. Also note that for people with combined incomes of $100,000 or more, the payroll tax hits you harder if your income is earned by two people than by one person.