5 ms·

Portugal still has the crazy tax system where deductions are applied over the whole salary, not the bands? That was one thing that never made any sense to me -

Portugal still has the crazy tax system where deductions are applied over the whole salary, not the bands? That was one thing that never made any sense to me - effectively removing motivations for salary increases, as you could end up with less even with a raise.

hn_throwaway_99 8y ago
Wait, what? Are you saying that the top rate in their graduated income tax system is applied to someone's entire income, not just the amount above the lower cutoff point for the highest band? If so, that seems literally insane to me. Why wouldn't Portugal fix this?
- jdmoreira 8y ago
  Because being reasonable and rational won't take you far in Portugal. Trust me, I'm Portuguese.
- pepelegal 8y ago
  An approximation of the taxes are deducted from the monthly pay, and the adjustment to the final tax is done annually, taking in account all deductions. Yearly final taxes are not applied to the entire income, only to the amount in the band as you mentioned. The approximate monthly taxes are applied to the whole monthly income.
fddr 8y ago
It is not quite that bad. Tax withholding rates are not marginal, they do apply to the whole salary. But the actual tax rates at the end of the year are marginal. So it is possible a pay raise means you get less money after witholding on a monthly basis, but on an yearly basis, after taxes paid/refunded, a pay raise is always net positive. Still silly, but not insane.
- bogomipz 8y ago
  But that's essentially a big no-interest loan people are giving to the government no? The money returned at the end of the year is money people could have been investing and earning a return on no? That seems closer to "insane" than "silly." Or am I missing something?
  - fyfy18 8y ago
    From the other side of the table, that is money the government is investing and earning a return on. If they did it the other way they'd have to raise the tax rates to compensate, which wouldn't go down for the politicians doing it, even if the net result is the same.
    - bogomipz 8y ago
      >"From the other side of the table, that is money the government is investing and earning a return on." With the exception of a few notable oil economy countries that have sovereign wealth funds, federal governments most certaily do not invest tax revenue in the market. Taxes are used to finance the running of the country. If governments are lucky something is left over paying its' bills and the government runs a surplus. Please provide a citation that Portugal invest its' citizen's tax revenues in the financial markets and makes a profit from those. >"If they did it the other way they'd have to raise the tax rates to compensate, which wouldn't go down for the politicians doing it, even if the net result is the same." Umm no if they did it the other way around the government could additionally tax people's gains from investments, and people could save for things like their retirement at the same time.
      - brohee 8y ago
        He never said in the market. They do invest in infrastructure tho, which actually helps the taxpayers.
        bogomipz 8y ago
        >"He never said in the market." What "they" said was: >"that is money the government is investing and earning a return on." "Investing money and earning a return on it" is universally understood to mean putting your money to work in the financial markets. Your comment is disingenuous at best. Further governments don't earn a "return" when they spend money on a stoplight or a bridge. Infrastructure requires upkeep, maintenance and eventual replacement. It's a coast center not a profit center. If it was the latter governments would be building infrastructure like crazy and running a budget surplus. And that clearly isn't the case is it?
sergiosgc 8y ago
It is sensible. First, deductibles are applied to the bands, like everywhere else. This calculation is done over your yearly salary, in March of the following year. You then pay income tax in August. However, in order to minimize the amount due in August, the government captures an estimate of your income tax every month (before you get paid). It is this estimate that is designed to be simple, and applies deductibles to the whole salary. There's no harm: If it happens to capture too much, you'll see your money back next August.
- indemnity 8y ago
  I still don’t understand the benefit over a progressive system. Under the progressive system, there are no surprises or delays, what I paid that month is exactly what I owe. Like another poster said, effectively an interest free loan to the government from taxpayers. What am I missing?
  - sergiosgc 8y ago
    > I still don’t understand the benefit over a progressive system. Simplicity and personal data protection. In order to capture tax in advance with perfect estimates, employers would need to know your total income and deductible expenses. With the simplistic system, they just need to know how much they're paying you.

hn_throwaway_99 8y ago

Wait, what? Are you saying that the top rate in their graduated income tax system is applied to someone's entire income, not just the amount above the lower cutoff point for the highest band? If so, that seems literally insane to me. Why wouldn't Portugal fix this?

jdmoreira 8y ago
Because being reasonable and rational won't take you far in Portugal. Trust me, I'm Portuguese.
pepelegal 8y ago
An approximation of the taxes are deducted from the monthly pay, and the adjustment to the final tax is done annually, taking in account all deductions. Yearly final taxes are not applied to the entire income, only to the amount in the band as you mentioned. The approximate monthly taxes are applied to the whole monthly income.

fddr 8y ago

It is not quite that bad. Tax withholding rates are not marginal, they do apply to the whole salary. But the actual tax rates at the end of the year are marginal. So it is possible a pay raise means you get less money after witholding on a monthly basis, but on an yearly basis, after taxes paid/refunded, a pay raise is always net positive. Still silly, but not insane.

bogomipz 8y ago
But that's essentially a big no-interest loan people are giving to the government no? The money returned at the end of the year is money people could have been investing and earning a return on no? That seems closer to "insane" than "silly." Or am I missing something?
- fyfy18 8y ago
  From the other side of the table, that is money the government is investing and earning a return on. If they did it the other way they'd have to raise the tax rates to compensate, which wouldn't go down for the politicians doing it, even if the net result is the same.
  - bogomipz 8y ago
    >"From the other side of the table, that is money the government is investing and earning a return on." With the exception of a few notable oil economy countries that have sovereign wealth funds, federal governments most certaily do not invest tax revenue in the market. Taxes are used to finance the running of the country. If governments are lucky something is left over paying its' bills and the government runs a surplus. Please provide a citation that Portugal invest its' citizen's tax revenues in the financial markets and makes a profit from those. >"If they did it the other way they'd have to raise the tax rates to compensate, which wouldn't go down for the politicians doing it, even if the net result is the same." Umm no if they did it the other way around the government could additionally tax people's gains from investments, and people could save for things like their retirement at the same time.
    - brohee 8y ago
      He never said in the market. They do invest in infrastructure tho, which actually helps the taxpayers.
      - bogomipz 8y ago
        >"He never said in the market." What "they" said was: >"that is money the government is investing and earning a return on." "Investing money and earning a return on it" is universally understood to mean putting your money to work in the financial markets. Your comment is disingenuous at best. Further governments don't earn a "return" when they spend money on a stoplight or a bridge. Infrastructure requires upkeep, maintenance and eventual replacement. It's a coast center not a profit center. If it was the latter governments would be building infrastructure like crazy and running a budget surplus. And that clearly isn't the case is it?

sergiosgc 8y ago

It is sensible. First, deductibles are applied to the bands, like everywhere else. This calculation is done over your yearly salary, in March of the following year. You then pay income tax in August. However, in order to minimize the amount due in August, the government captures an estimate of your income tax every month (before you get paid). It is this estimate that is designed to be simple, and applies deductibles to the whole salary. There's no harm: If it happens to capture too much, you'll see your money back next August.

indemnity 8y ago
I still don’t understand the benefit over a progressive system. Under the progressive system, there are no surprises or delays, what I paid that month is exactly what I owe. Like another poster said, effectively an interest free loan to the government from taxpayers. What am I missing?
- sergiosgc 8y ago
  > I still don’t understand the benefit over a progressive system. Simplicity and personal data protection. In order to capture tax in advance with perfect estimates, employers would need to know your total income and deductible expenses. With the simplistic system, they just need to know how much they're paying you.