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The limit is 65k. You pay 25% to the mandatory pension fund. Of the remaining, they assume 22% of expenses and tax you 15% on what's left. So you take home ~42k
by stefano 7y ago
The limit is 65k. You pay 25% to the mandatory pension fund. Of the remaining, they assume 22% of expenses and tax you 15% on what's left. So you take home ~42k net after taxes. If he were to earn 65.001 euros, he'd take home ~32k net after taxes. You need to earn at least ~80k to break even. So if you earn between 65k and 80k, you're screwed. Needless to say, that 65k becomes a ceiling because if you get a raise, you start earning several thousands of euros less. So either you're stuck at 65k, or you bite the bullet and take the hit until you reach 80k, at which point you can start increasing your take home again. So a 1 euro increase gives you a -10k "raise", while a 15k increase gives you a 0 euros "raise".
It's probably the most stupid tax system in the developed world.
- Hendrikto 7y ago> It's probably the most stupid tax system in the developed world. In Germany you can end up in a similar situation, though I think the gap is smaller.
- 124909 7y agoTo be fair this is not new, they just raised the limit that keeps you in the simplified regime and the gap of negative marginal increase of income went from being around 5k to being over 50k wide.
- gherkinnn 7y agoWho comes up with ideas like this? - bad for social mobility - incentive to work off the books
- byefruit 7y agoNot as dumb and not something that catches everyone but a similar problem in the UK is free childcare. 22 hours of free childcare a week is worth ~£9k a year post-tax. If either you or your partner earn a penny over £100k then you're no longer eligible for any of your children. So with two kids in nursery a penny pay rise might lead to a £30k pre-tax pay cut.
- djmcmerlin 7y agoThat is a different situation, since a family with one partner earning £100k is assumed to be well enough off to provide childcare for their kids. Another way to look at this is that it's providing more to the poorer families who need it more by cutting away costs for richer families.
- detaro 7y agoYou could apply the exactly same argument to the other example. And regarding the second line, in both cases the problem isn't that richer people get less, but that there's a sharp cutoff instead of a gradual scale.
- byefruit 7y agoThe similarity is that there's a discontinuity which discourages you from increasing your gross pay because your net pay will be reduced. That a single £100k salary is enough to maintain a household of two kids is neither here nor there (and also depends very much on where you live).
- username90 7y agoThis is why I never understood means tested aids like this. Why isn't childcare free for everyone? Is it really that expensive to give this to those who earn more than £100k as well? All this does is create an unnecessary rift between rich and poor people.
- jobigoud 7y agoIsn't it the opposite? It fills the gap by providing poorer people free child care where richer ones can afford it by themselves?
- pluma 7y agoSo someone making £100k can afford it more than someone making £99.999k? Means-tested only makes sense if you have a progression instead of a hard cut-off, otherwise it creates these pits of despair. It's similar with welfare in Germany: if you have an extremely low-paying job, welfare will "top up" your income up to the same level as someone with no job. So until you break even, working an extra hour or taking a job that pays slightly more is economically pointless because it has no effect on your bottom line: every extra Euro you earn gets deducted from the welfare benefits. This encourages undeclared work, losing the government money via taxes.
- simonebrunozzi 7y agoI'm a fellow Italian but living abroad (San Francisco). I had no idea of this problem. It's completely dumb. When was this introduced, this year?
- stefano 7y agoYes, it was introduced in late 2018 and came into effect this year. It's basically an extension of an equally bad tax cut that was previously reserved to people earning less than 30k. Given the higher limit, it makes the jump above that limit twice as steep.
- bitcoinmoney 7y agoThank you so much for the explanation. What was the rationale behind this?
- stefano 7y agoA politician wanted votes. To get votes, you need to lower taxes. But that requires money, which there isn't much to go around. So they picked a niche of people (freelancers earning less than 65k) and gave them a tax cut. Making it progressive (i.e. everyone pays 15% on the first 65k and then a higher tax rate on the rest) would either cost too much, or be too small of a cut to gain enough votes.
- jotm 7y agoI fail to see how this system is supposed to improve things over regular progressive taxation... was it even worse before? What were they thinking?
- zozbot234 7y agoHey, one of the majority parties that are aligned with the government in Italy is literally headed by a clown. And you're surprised that they came up with this? It could be worse.
- 124909 7y agoNot quite. You can't have any deduction or detraction in t, e so-called-flat-tax regime, so your expenses are computed as a forfait depending on your profession. For us tech workers the magic number is 67%, so the effective tax rate is 10%. Also I think that my calculations make the break-even point between the two different regimes a little over 100k.