5 ms·

As somebody who stands to get clobbered by this high tax bracket, I sometimes feel like I'm the only one out here who thinks it's just fine. I've always been i

As somebody who stands to get clobbered by this high tax bracket, I sometimes feel like I'm the only one out here who thinks it's just fine. I've always been in favor of a flat tax with a lower bound. So, say 50% of all income above $20k. Let the regular folk (like me last during the last couple years of getting a bootstrapped startup off the ground) get off without paying any tax whatsoever. Take up the slack by making those with plenty (like me now that things are going well) pay our fair share. I mean sure, losing half your income to taxes is a problem, but it's one of those good problems, because to get it you need to be making four times what everybody else is making. As long as you figure out what your actual means are and live within them, you'll still do fine. EDIT: 50% -> "high" thanks to the below:

guelo 16y ago
There is no "50% tax bracket". Obama's proposed plan would raise the 33% and 35% brackets to 36% and 39.6%.
- jasonkester 16y ago
  Thanks for that. This was actually the first I'd heard of this tax hike, since the little bit of news I get generally comes filtered through HN. I've modified the number in my comment for you.
- rdl 16y ago
  There is if you count state and local taxes. In California you can be paying 9.3% + 1.0%, and in other places (NYC) it can be even higher. At 39.6 + 9.3 + 1.0, you would be above most countries in the world.
  - anigbrowl 16y ago
    That's funny, because on my federal tax return there's an entry where you deduct your state income tax. Sales tax, of course, is entirely different from income tax. http://www.irs.gov/publications/p17/ch22.html#en_US_publink1000173147 http://www.irs.gov/publications/p17/ch22.html#en_US_publink1...
    - rdl 16y ago
      Something being deductible on federal is nowhere near the same as a tax credit. You don't get a tax credit for state/local taxes. You get a deduction (which doesn't apply under AMT). So, if you're in the 25% bracket, you can deduct your 10% state taxes, which reduces it from 25+10% to 25+10-(0.25*10). California's 9.3% is the top regular marginal income tax rate. There is also an 8-10% state/local sales tax. There is no way around the analysis that California and New York are relatively high tax states compared to Nevada and Washington.
      - anigbrowl 16y ago
        I know this, and am not trying to claim that high taxes don't exist - I live in California myself, and think we need to trim costs to become more competitive. But I see no value in exaggerating the impact of taxes either. Call me a pedant if you like, but I'm just tired of seeing economic debates where people begin with best/worst case arguments, eg throwing out numbers which don't take inflation into account or suchlike. I felt the message I replied could have acknowledged that one number does not tell the whole story.
- bhickey 16y ago
  Sure, but you're leaving out FICA (6.2%) and Medicare (1.45%). This bumps the brackets to 40.65% and 42.65% (or 43.65% and 47.25%). After local taxes this can easily top 50%. Suppose you earned $357k gross in Rhode Island. Your total tax liability would be in the area of $189k, or 52.7%. All of this also ignores the employer FICA contribution.
  - rdl 16y ago
    FICA phases out around $100k, but there's also the future ObamaCare 3.8% tax (unearned income) 0.9% (earned income) as well (currently legislated to begin 1 JAN 2013).
    - bhickey 16y ago
      I took this into account in my calculation. While, Social Security payments are capped at $102k (~$6k tax liability), Medicare is uncapped.
      - rdl 16y ago
        The amusing thing for me is that there are certain incomes where the marginal rate actually goes down when income goes up (although absolute taxes paid always go up), due to phase-outs of deductions, various regressive taxes like FICA, local, etc.. It's actually quite complicated -- someone did a table on Quora, which I can't readily find right now, and it looks like the marginal rate peak for a single person was usually around 180-220k. From a purely efficiency standpoint, it seems like one would want the marginal rate function to be as smooth and ideally monotonic (if not strictly monotonic) as possible.
  - ryanwaggoner 16y ago
    Can you break down your calculation a little? It's way higher than what I got...wondering if you forgot that these are marginal tax rates?
    - bhickey 16y ago
loewenskind 16y ago
>I mean sure, losing half your income to taxes is a problem This is a big issue I see in America (being American myself). Money spent in taxes is always considered "lost" [1]. Consider somewhere like Sweden. Tax rates go above 50%, but for that money they get health care, college for as high as they're capable of going (even room and board while they're attending!), etc., etc. So those are all things they don't have to spend their own money on. At the end of the day should we care about how much of our money the government touches, or about the quality of life we can have? [1] Of course in America there may be some truth to it given the kinds of things money gets used for by the US government.
- berntb 16y ago
  >>Consider somewhere like Sweden. Sweden has the world's highest taxes, but lots of the common functionality works badly. For example, it is really hard to get a doctor to put work into diagnosing any problems you have. There is IMHO a business opportunity for a travel agency to organize vacation trips for this... (I had knee problems for half my life -- this did lower my life quality. The private doctor that in the end diagnosed and cured it (easily cured, by the way...), said that he'd seen quite a few cases of that problem uncured for decades!) Also note that if something isn't solved by the one-size-fits-all state systems and you end up paying privately -- you have little money left over after you've paid the world's highest taxes. (Also, room/board isn't free for students. They generally take loans. Remember that part about having little money left over after taxes..?) That said -- the US health care system seems worse than anywhere else in the western world.
  - loewenskind 16y ago
    >Sweden has the world's highest taxes Pretty sure that's actually Denmark. >For example, it is really hard to get a doctor to put work into diagnosing any problems you have. As opposed to the US where you'll pay substantially more money for it? In my experience doctors tend to check symptoms and form a matrix in their head of possible causes, applicable medication, removing medications that conflict with each other and just give you the whole remaining set. You'll be paying for all that medication, btw. If it works, they can't know for sure what it was or what fixed it. If it doesn't you enter round two, a subset of the previously excluded meds. Get out your wallet again. >Also, room/board isn't free for students. They generally take loans. Is this new? I used to hang out regularly with about 20 different Swedish students (an online game) and this is how they told it me worked. As far as I know none of them were working, just going to school.

guelo 16y ago

There is no "50% tax bracket". Obama's proposed plan would raise the 33% and 35% brackets to 36% and 39.6%.

jasonkester 16y ago
Thanks for that. This was actually the first I'd heard of this tax hike, since the little bit of news I get generally comes filtered through HN. I've modified the number in my comment for you.
rdl 16y ago
There is if you count state and local taxes. In California you can be paying 9.3% + 1.0%, and in other places (NYC) it can be even higher. At 39.6 + 9.3 + 1.0, you would be above most countries in the world.
- anigbrowl 16y ago
  That's funny, because on my federal tax return there's an entry where you deduct your state income tax. Sales tax, of course, is entirely different from income tax. http://www.irs.gov/publications/p17/ch22.html#en_US_publink1000173147 http://www.irs.gov/publications/p17/ch22.html#en_US_publink1...
  - rdl 16y ago
    Something being deductible on federal is nowhere near the same as a tax credit. You don't get a tax credit for state/local taxes. You get a deduction (which doesn't apply under AMT). So, if you're in the 25% bracket, you can deduct your 10% state taxes, which reduces it from 25+10% to 25+10-(0.25*10). California's 9.3% is the top regular marginal income tax rate. There is also an 8-10% state/local sales tax. There is no way around the analysis that California and New York are relatively high tax states compared to Nevada and Washington.
    - anigbrowl 16y ago
      I know this, and am not trying to claim that high taxes don't exist - I live in California myself, and think we need to trim costs to become more competitive. But I see no value in exaggerating the impact of taxes either. Call me a pedant if you like, but I'm just tired of seeing economic debates where people begin with best/worst case arguments, eg throwing out numbers which don't take inflation into account or suchlike. I felt the message I replied could have acknowledged that one number does not tell the whole story.
bhickey 16y ago
Sure, but you're leaving out FICA (6.2%) and Medicare (1.45%). This bumps the brackets to 40.65% and 42.65% (or 43.65% and 47.25%). After local taxes this can easily top 50%. Suppose you earned $357k gross in Rhode Island. Your total tax liability would be in the area of $189k, or 52.7%. All of this also ignores the employer FICA contribution.
- rdl 16y ago
  FICA phases out around $100k, but there's also the future ObamaCare 3.8% tax (unearned income) 0.9% (earned income) as well (currently legislated to begin 1 JAN 2013).
  - bhickey 16y ago
    I took this into account in my calculation. While, Social Security payments are capped at $102k (~$6k tax liability), Medicare is uncapped.
    - rdl 16y ago
      The amusing thing for me is that there are certain incomes where the marginal rate actually goes down when income goes up (although absolute taxes paid always go up), due to phase-outs of deductions, various regressive taxes like FICA, local, etc.. It's actually quite complicated -- someone did a table on Quora, which I can't readily find right now, and it looks like the marginal rate peak for a single person was usually around 180-220k. From a purely efficiency standpoint, it seems like one would want the marginal rate function to be as smooth and ideally monotonic (if not strictly monotonic) as possible.
- ryanwaggoner 16y ago
  Can you break down your calculation a little? It's way higher than what I got...wondering if you forgot that these are marginal tax rates?
  - bhickey 16y ago

loewenskind 16y ago

>I mean sure, losing half your income to taxes is a problem This is a big issue I see in America (being American myself). Money spent in taxes is always considered "lost" [1]. Consider somewhere like Sweden. Tax rates go above 50%, but for that money they get health care, college for as high as they're capable of going (even room and board while they're attending!), etc., etc. So those are all things they don't have to spend their own money on. At the end of the day should we care about how much of our money the government touches, or about the quality of life we can have? [1] Of course in America there may be some truth to it given the kinds of things money gets used for by the US government.

berntb 16y ago
>>Consider somewhere like Sweden. Sweden has the world's highest taxes, but lots of the common functionality works badly. For example, it is really hard to get a doctor to put work into diagnosing any problems you have. There is IMHO a business opportunity for a travel agency to organize vacation trips for this... (I had knee problems for half my life -- this did lower my life quality. The private doctor that in the end diagnosed and cured it (easily cured, by the way...), said that he'd seen quite a few cases of that problem uncured for decades!) Also note that if something isn't solved by the one-size-fits-all state systems and you end up paying privately -- you have little money left over after you've paid the world's highest taxes. (Also, room/board isn't free for students. They generally take loans. Remember that part about having little money left over after taxes..?) That said -- the US health care system seems worse than anywhere else in the western world.
- loewenskind 16y ago
  >Sweden has the world's highest taxes Pretty sure that's actually Denmark. >For example, it is really hard to get a doctor to put work into diagnosing any problems you have. As opposed to the US where you'll pay substantially more money for it? In my experience doctors tend to check symptoms and form a matrix in their head of possible causes, applicable medication, removing medications that conflict with each other and just give you the whole remaining set. You'll be paying for all that medication, btw. If it works, they can't know for sure what it was or what fixed it. If it doesn't you enter round two, a subset of the previously excluded meds. Get out your wallet again. >Also, room/board isn't free for students. They generally take loans. Is this new? I used to hang out regularly with about 20 different Swedish students (an online game) and this is how they told it me worked. As far as I know none of them were working, just going to school.