Monday, April 28, 2008

"Two Income" Tax Trap

A Glenn Reynolds post links to a discussion of the "two income trap", and the link is worth reading. The point of the writer is that income tax increases over time have made a huge difference in a family's discretionary income, and he notes that two earner families suffer a very significant tax burden, a sort of vicious cycle: the second income brings in additional taxes and expenses related to the second income, so that the marginal increase in discretionary income is far less than one would have thought without a careful analysis.

One interesting point made in the link is that housing costs increased because parents moved into school districts that had better schools, driving up prices for homes in those neighborhoods. A second income appeared to be necessary in order to afford that housing, thus raising demand and, then, raising prices further.

As we were raising our children, we saw that happening in a neighborhood called "Pinecrest" in an area south of us about 8 miles. There was an elementary school there, called Pinecrest Elementary, that had a great reputation. It drew young families to the neighborhood who did not want to send their children to private schools. The elementary school got even better, because the families who sent their children there were involved in the school: here was sort of a benign cycle at work.

We decided to stay in Miami Springs. The schools were OK, but not great, although the Middle School had a below average reputation. Carol stayed home and did not get a second job outside, and she watched what was going on in the schools our children attended like a hawk. She was also very involved in the elementary school they attended, pulling of an effective coup against the entrenched leadership of the PTA that was at war with the very gifted principal (some anti-Semitism on the part of the deposed clique I think), and was otherwise involved as a "listener" in a program that did not involve our children (She was already a careful listener at home.)

I do not know whether Miami Springs is any longer affordable for young families with one income. It may not be. I have, however, been more and more impressed with home-schooling families, and maybe that's an answer for those who must live in a less affluent neighborhood at the cost of a poor public school nearby. I am not talking about home-schooling to avoid the "godless humanism" attributed to "government schools". I am simply talking about getting a decent education for one's children.

In any event, if one of the parents is disposed to stay at home with the children, it seems to me that, before reaching for that second income, it would be worth doing a very careful analysis of the costs of the second income as compared to the alternative of intense involvement by the stay-at-home parent in the local public school or, if that seems to be impractical, actually home-schooling the children.

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