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I read somewhere that the German billionaire class controls 1T dollars. Why do people earn only 5k after tax ? There seem to be very little opportunities for in

I read somewhere that the German billionaire class controls 1T dollars. Why do people earn only 5k after tax ? There seem to be very little opportunities for investment in stock market. Real estate prices too seem insane.

Killes 7y ago
>Why do people earn only 5k after tax ? >I read somewhere that the German billionaire class controls 1T dollars You answered the question yourself no ?
luckylion 7y ago
> Why do people earn only 5k after tax? Because Germany is a high-tax-country. People also generally don't have a lot of private pension funds, that's tied up in a publicly organized system that's based on income, and "shared" between employer and employee (that is, the employer will pay half of it directly, which generally means that your pay is lower by that much). You get pension claims instead of building personal wealth. While there's still a lot of personal wealth to be inherited over the next decades, families appear to have more difficulties building wealth. It's why, whenever somebody says "Germany is a rich country", my instinct is to ask them "what is this Germany you speak of", because there are large differences when you look at the average/median citizen, a very well-off knowledge worker or rich person, or a person living at/below the poverty line.
tatami 7y ago
You and we say "after tax", but actually it's after tax, health insurance, unemployment insurance, pension fund and few more peanuts.
- luckylion 7y ago
  I'm not an expert on that since I'm self-employed, but imho that's not completely accurate. Most contributions aren't completely tax deductible (pensions: 86/88%), and many of them share a max deduction limit of 1900 Euros, so you'll quickly get above that if you're earning an average salary.
  - hef19898 7y ago
    Public pensions and all the other stuff is usually directly deducted from your monthly pay, private insurance is where the deductibles come in. Not an issue for you standard stuff as an employee.
    - luckylion 7y ago
      Yeah, not an "I need to pay this" issue, but I was talking about tax implications. Whether the money makes a stop in your account is one thing, whether it gets taxed as if it did is another, which I understand it is.
petre 7y ago
Real estate prices are insane probably partly due to ECB negative interest rates which make buying on credit very attractive. I read an article on HN last week about zero interest 20y loans in Denmark. The DKK is pegged to the Euro. https://news.ycombinator.com/item?id=20647651 https://news.ycombinator.com/item?id=20647651 Add to that all time lows (zero and below) for German bond yields which has bleak consequences for long time savers (future pensioners). Germany is a nation of savers. Swiss 10y bonds are at -1%. We are living in interesting times.
- thecleaner 7y ago
  So what's a good strategy here ? Buy stuff on credit but sell to who ?
  - petre 7y ago
    Dunno, but normally it's not a great idea to buy real estate when prices are insane and property taxes are high. Also if you buy on credit the asset is the creditor's until you pay it off, so you can't sell.
    - hef19898 7y ago
      Not in the case of real estate. There you might have to repay the outstanding debt immediately including any losses of the bank. Unless you manage to sell the financing along the real estate. For private persons, investors and developers are different I think in terms of credit conditions.
em500 7y ago
> Why do people earn only 5k after tax ? It's not clear what your point of reference is. If you're wondering why it's much lower than in the US (where the 90-percentile household is probably around 170k USD pre-tax or 9k-10k post-tax), there are many many factors that contribute to the difference. The most important ones (unordered) are IMO: - USD is probably overvalued by 15%-20% [1]. In the past 10 years, the EUR/USD rate fluctuated between 1.05 and 1.55, currently it's 1.12. It's unlikely that the relative living standards between the US and Germany fluctuated as much as 50% in this period, so a lot of the nominal incomes differences are not real. - Americans work 30% more hours than Germans [2] These two factors can explain most of the pre-tax income differences. The net difference is a bit higher still, due to higher taxes/mandatory payments. I don't have references at hand, but at the €100k level, take-home pay is around 60%-62% of gross, while for an American at $112k it's closer to 70% (federal, state and payroll). No comment about justness, proper accounting for transfers, subsidies, other taxes, mandatory insurances, etc. This is a huge sprawling debate topic, but it's indisputable that disposable income at the same gross is higher in the US than in Europe. IMO, the first 2 factors accounting for differences in gross incomes are more important anyway. A fairly mainstream economic theory is that the higher European (marginal) taxes are actually a major cause of the lower working hours (and hence lower personal income) [3]. The highest marginal rates actually don't differ that much (typically around 50% in Europe, 45% federal+state in the US), but in Europe the higher rates typically kick in at much lower levels: US marginal rate at $100k is probably around 30%, whereas in many European countries it's already in the 40%+ bracket. [1] https://www.bloomberg.com/news/articles/2019-06-11/trump-has-a-point-the-euro-is-22-too-cheap-using-oecd-measure https://www.bloomberg.com/news/articles/2019-06-11/trump-has... [2] https://en.wikipedia.org/wiki/List_of_average_annual_labor_hours_in_OECD_countries https://en.wikipedia.org/wiki/List_of_average_annual_labor_h... [3] https://www.wsj.com/articles/SB109830788286551061 https://www.wsj.com/articles/SB109830788286551061
- hef19898 7y ago
  Also don't forget that, at least in Germany, after tax in casual conversation usually means net salaries after stuff like social security, health care, etc... Which might also explain some of the difference.
jaclaz 7y ago
>Why do people earn only 5k after tax ? As a side note, the 5k are not actually "purchasing power" or really-really "after tax" as it is usually intended in the US, in the EU there is VAT: https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/European_Union_value_added_tax https://en.wikipedia.org/wiki/European_Union_value_added_tax which is similar to the "sales tax" in the US but that is usually much higher. In Germany (Mehrwertsteuer) it is (relativaly) low at 19% standard.
- wil421 7y ago
  In the US we have sales tax (and even city tax) that varies from state, county, city. Most states also have an income tax. Do German states have income taxes?
  - thecleaner 7y ago
    Not that I am aware of. Tax rate seems fairly constant from State to state
  - luckylion 7y ago
    No, states and county-equivalents get a share from the federal income tax, and add other taxes (mostly on county-level), "Gewerbesteuer", which is an additional tax on businesses, and property tax being the largest ones.

Killes 7y ago

>Why do people earn only 5k after tax ? >I read somewhere that the German billionaire class controls 1T dollars You answered the question yourself no ?

luckylion 7y ago

> Why do people earn only 5k after tax? Because Germany is a high-tax-country. People also generally don't have a lot of private pension funds, that's tied up in a publicly organized system that's based on income, and "shared" between employer and employee (that is, the employer will pay half of it directly, which generally means that your pay is lower by that much). You get pension claims instead of building personal wealth. While there's still a lot of personal wealth to be inherited over the next decades, families appear to have more difficulties building wealth. It's why, whenever somebody says "Germany is a rich country", my instinct is to ask them "what is this Germany you speak of", because there are large differences when you look at the average/median citizen, a very well-off knowledge worker or rich person, or a person living at/below the poverty line.

tatami 7y ago

You and we say "after tax", but actually it's after tax, health insurance, unemployment insurance, pension fund and few more peanuts.

luckylion 7y ago
I'm not an expert on that since I'm self-employed, but imho that's not completely accurate. Most contributions aren't completely tax deductible (pensions: 86/88%), and many of them share a max deduction limit of 1900 Euros, so you'll quickly get above that if you're earning an average salary.
- hef19898 7y ago
  Public pensions and all the other stuff is usually directly deducted from your monthly pay, private insurance is where the deductibles come in. Not an issue for you standard stuff as an employee.
  - luckylion 7y ago
    Yeah, not an "I need to pay this" issue, but I was talking about tax implications. Whether the money makes a stop in your account is one thing, whether it gets taxed as if it did is another, which I understand it is.

petre 7y ago

Real estate prices are insane probably partly due to ECB negative interest rates which make buying on credit very attractive. I read an article on HN last week about zero interest 20y loans in Denmark. The DKK is pegged to the Euro. https://news.ycombinator.com/item?id=20647651 https://news.ycombinator.com/item?id=20647651 Add to that all time lows (zero and below) for German bond yields which has bleak consequences for long time savers (future pensioners). Germany is a nation of savers. Swiss 10y bonds are at -1%. We are living in interesting times.

thecleaner 7y ago
So what's a good strategy here ? Buy stuff on credit but sell to who ?
- petre 7y ago
  Dunno, but normally it's not a great idea to buy real estate when prices are insane and property taxes are high. Also if you buy on credit the asset is the creditor's until you pay it off, so you can't sell.
  - hef19898 7y ago
    Not in the case of real estate. There you might have to repay the outstanding debt immediately including any losses of the bank. Unless you manage to sell the financing along the real estate. For private persons, investors and developers are different I think in terms of credit conditions.

em500 7y ago

> Why do people earn only 5k after tax ? It's not clear what your point of reference is. If you're wondering why it's much lower than in the US (where the 90-percentile household is probably around 170k USD pre-tax or 9k-10k post-tax), there are many many factors that contribute to the difference. The most important ones (unordered) are IMO: - USD is probably overvalued by 15%-20% [1]. In the past 10 years, the EUR/USD rate fluctuated between 1.05 and 1.55, currently it's 1.12. It's unlikely that the relative living standards between the US and Germany fluctuated as much as 50% in this period, so a lot of the nominal incomes differences are not real. - Americans work 30% more hours than Germans [2] These two factors can explain most of the pre-tax income differences. The net difference is a bit higher still, due to higher taxes/mandatory payments. I don't have references at hand, but at the €100k level, take-home pay is around 60%-62% of gross, while for an American at $112k it's closer to 70% (federal, state and payroll). No comment about justness, proper accounting for transfers, subsidies, other taxes, mandatory insurances, etc. This is a huge sprawling debate topic, but it's indisputable that disposable income at the same gross is higher in the US than in Europe. IMO, the first 2 factors accounting for differences in gross incomes are more important anyway. A fairly mainstream economic theory is that the higher European (marginal) taxes are actually a major cause of the lower working hours (and hence lower personal income) [3]. The highest marginal rates actually don't differ that much (typically around 50% in Europe, 45% federal+state in the US), but in Europe the higher rates typically kick in at much lower levels: US marginal rate at $100k is probably around 30%, whereas in many European countries it's already in the 40%+ bracket. [1] https://www.bloomberg.com/news/articles/2019-06-11/trump-has-a-point-the-euro-is-22-too-cheap-using-oecd-measure https://www.bloomberg.com/news/articles/2019-06-11/trump-has... [2] https://en.wikipedia.org/wiki/List_of_average_annual_labor_hours_in_OECD_countries https://en.wikipedia.org/wiki/List_of_average_annual_labor_h... [3] https://www.wsj.com/articles/SB109830788286551061 https://www.wsj.com/articles/SB109830788286551061

hef19898 7y ago
Also don't forget that, at least in Germany, after tax in casual conversation usually means net salaries after stuff like social security, health care, etc... Which might also explain some of the difference.

jaclaz 7y ago

>Why do people earn only 5k after tax ? As a side note, the 5k are not actually "purchasing power" or really-really "after tax" as it is usually intended in the US, in the EU there is VAT: https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/European_Union_value_added_tax https://en.wikipedia.org/wiki/European_Union_value_added_tax which is similar to the "sales tax" in the US but that is usually much higher. In Germany (Mehrwertsteuer) it is (relativaly) low at 19% standard.

wil421 7y ago
In the US we have sales tax (and even city tax) that varies from state, county, city. Most states also have an income tax. Do German states have income taxes?
- thecleaner 7y ago
  Not that I am aware of. Tax rate seems fairly constant from State to state
- luckylion 7y ago
  No, states and county-equivalents get a share from the federal income tax, and add other taxes (mostly on county-level), "Gewerbesteuer", which is an additional tax on businesses, and property tax being the largest ones.