8 ms·

Marginal tax rates are much higher in Europe at lower levels, so in order to pay someone 50% more, you would have to pay them 100% more for them to get a 50% pa

Marginal tax rates are much higher in Europe at lower levels, so in order to pay someone 50% more, you would have to pay them 100% more for them to get a 50% pay increase to make up for the money taken by taxes (the mechanism that prevents wealth inequality)

asdfasgasdgasdg 6y ago
That's more or less true in the U.S. too, at the rates software engineers make, at least in NY and CA. In my locality a software engineer making $100k will face a 40% marginal tax rate.
- strombofulous 6y ago
  40%?! Where do you live? The effective federal income tax at 100k is 22.75%. I don't think any state has a 17.25% effective income tax, certainly not if you only earn 100k.
  - arcticbull 6y ago
    If you're making 100K in California, your marginal tax rate is: - Federal: 24% - State: 9.3% - FICA: 7.65% (6.2% social security, 1.45% medicare) - SDI: 1% This gets you to 42%. Your employer matches the FICA payments too, so that's closer to 50% of your take-home pay. Once you make enough to pay off the regressive FICA taxes ($142K) you get bumped back down to "just" the mid-high 30% range briefly, until you hit $163K, then its back up to 40% again.
    - strombofulous 6y ago
      Wow, I had no idea
      - ilikeerp 6y ago
        It's not insane - it's pretty common in most developed countries. The US is a major outlier.
        titanomachy 6y ago
        In many developed countries, 42% tax would cover healthcare, a pension you can actually live off of, and fully-paid education for all of your children. Californians get none of those things, and I don't really understand what it is that they get over (e.g.) Washingtonians for the extra ~30% in taxes.
        pm90 6y ago
        They get protection by the US military and promotion of Californian business interests throughout the world through Federal institutions. Not to mention: friction free access to a large labor pool and US domestic market etc. I get your point that the US doesn’t provide as much social services as other developed nations. Almost all these nations depend on US hegemony to not have to spend as much on their military. This is a choice that the US made. There are good arguments for scaling back military spending and increasing social spending without compromising US hegemony though, however those choices may not be politically expedient so here we are.
        newswasboring 6y ago
        I don't want to address the hegemony point beyond I disagree on the need or even effectiveness of US military. But I would want to point out the curious phrasing and of your first paragraph and what that says about USA way of thinking. All these points are business targeted while all european points are individual targeted.
        pm90 6y ago
        > But I would want to point out the curious phrasing and of your first paragraph and what that says about USA way of thinking. All these points are business targeted while all european points are individual targeted. I don't think there is anything curious about this way of thinking. And US hegemony plays directly into this! Pre-World Wars, European nations had their colonies and their militaries and the priority of thinking was along similar lines: access to expansive markets, large pools of labor, protection of business interests etc, chiefly through colonies. WW2 changed all of that, reducing European nations to client states (no disrespect) of the US, that funded their reconstruction. Colonialism was no longer allowed, and European nations could not freely pursue foreign markets without competing with US companies, which would always get precedence. With no real way to compete with the US militarily, and with NATO aligning with their immediate geo-political needs anyways, European nations invested heavily on Social Services, rather than blow up their military budgets. This geopolitical equation hasn't changed post WW2 and you have generations of people that consider social services as the primary function of their Government. However, its a fundamental mistake to assume that a Government can provide effective social services without having a strong economy. Strong economies require successful businesses.
    - benjaminl 6y ago
      Don’t forget the 10.25% sales tax. This puts the combined marginal tax rate at 59.85%. (24 + 9.3 + 7.65 + 7.65 + 1 + 10.25)
      - sdenton4 6y ago
        Only if you buy stuff, though. Which was hard this year in particular, and not terribly useful once basic needs are met.
        Hamuko 6y ago
        But one of the reasons why buying stuff was so hard last year (which I imagine is what you meant) was because people were buying a lot more stuff.
        fnord123 6y ago
        GP is based in UK where lockdowns closed shops. So it was literally hard to buy things when shops are closed.
      - knuthsat 6y ago
        In Croatia the total would be about 63%. If you go through capital gains (no paycheck just profit after corporate tax, capital income tax and VAT) it's 53%. It could go down if some company expenses can be used for your life expenses. In Austria the total is 75%. In Austria going through capital gains would still be 70%. I'm very disappointed at how much money Europe sucks out of my work.
        passerby1 6y ago
        > I'm very disappointed at how much money Europe sucks out of my work Are you owner of property like apartment or house there? Just wandering, if that makes a significant personal economic difference for owning it in EU.
        6y ago
    - georgeplusplus 6y ago
      This is slightly misleading. The federal tax rate is a tiered system, meaning a portion of your income is taxed at a certain rate and income that exceeds that tier is taxed at a different rate after that and so on. The federal tax rate is much lower if you account for that.
      - beagle3 6y ago
        Op did say “marginal rate”
        nicoburns 6y ago
        Yes, but you'd be amazed at how many people don't understand what that means. No doubt it's not true on HN, but a lot of people among the general public seem to be under the impression that the effective rate jumps at thresholds.
        learnstats2 6y ago
        I personally know someone who turned down a payrise for this reason.
    - taffer 6y ago
      Shouldn't that be 37%? 1-(1-0,24)*(1-0,093)*(1-0,0765)*(1-0,01) = 0,37
      - sokoloff 6y ago
        No. Those taxes are levied on the gross income, not on the net income after the previous tax has been applied.
    - EVa5I7bHFq9mnYK 6y ago
      Parent message talks about effective tax rate, you talk about marginal tax rate. You are talking about 2 different things.
    - imtringued 6y ago
      So California is basically on par with Germany? Yet all I hear from Americans is how our tax rates are high. A lot of those "taxes" are also not going into the government's budget. They are used to fund specific services exclusively.
- overscore 6y ago
  That's fairly low by E.U. standards. The marginal rate in Ireland would be 52%.
ChuckNorris89 6y ago
>the mechanism that prevents wealth inequality False, this mechanism only prevents income inequality but not wealth inequality as existing wealth is not taxed much in Europe. For example, inheritances, assets and properties are not taxed much in Europe (people scream double taxation if you propose that) but income is taxed substantially so you'll never be able to save enough to catch up to the upper classes who own assets. So actually, in some European countries, while having low income inequality because of high income taxes, you end up with huge wealth inequality due to untaxed inheritances, assets and overvalued properties rolled over across multiple generations to the point where Germany's top 10% own two thirds of the country's wealth: https://www.iamexpat.de/expat-info/german-expat-news/germanys-richest-10-percent-owns-two-thirds-its-wealth https://www.iamexpat.de/expat-info/german-expat-news/germany... To level the playing field and reduce wealth inequality, a sound policy would be to tax income less and tax inheritances and assets more but fat chance of that ever happening as that would be a blow to the ruling class.
- overscore 6y ago
  This comment makes the mistake of treating Europe like a country, which it is not. > For example, inheritances, assets and properties are not taxed much in Europe (people scream double taxation if you propose that) but income is taxed substantially so you'll never be able to save enough to catch up to the upper classes who own assets. In Ireland, apart from relatively small tax-free thresholds (€335,000 lifetime from parent to child, for example), gifts and inheritances are taxed at 33%. In the UK, above its (similar) threshold, the rate is 40%. The US Federal Estate tax rate is 40%, but with an enormous $11,580,000 estate threshold, which is orders of magnitude higher than Ireland or the UK. Even though Ireland and the UK have some of the highest inheritance taxes in the world, the EU effective average is still ~14% - double the global average of ~7% and on par with the US, where added State taxes vary the average between 12% and 19%. Source: https://www.uhy.com/uk-imposes-highest-taxes-on-inheritance-of-all-major-economies/ https://www.uhy.com/uk-imposes-highest-taxes-on-inheritance-...
  - ChuckNorris89 6y ago
    >This comment makes the mistake of treating Europe like a country, which it is not. Of course it's not, never said it was but cherry picking countries with larger inheritance tax is also a mistake as you can't choose where you pay your taxes as an EU resident. You pay them where your main residence is. So on the other side of the spectrum you have Austria which has high income tax (because socialism and income equality) but basically no inheritance taxes, and taxes on assets are levied on their original purchase price so you end up having countless residents who earn small incomes but are sitting on millions of euros of wealth due to exploding real estate values but only pay 5 Euros tax per year as that's levied against the purchase price from 60 years ago when their grandparents bought it for pennies. So you end up with huge wealth inequality where even people with good incomes pay high taxes and are priced out of the real estate market if they don't come from families of means.

asdfasgasdgasdg 6y ago

That's more or less true in the U.S. too, at the rates software engineers make, at least in NY and CA. In my locality a software engineer making $100k will face a 40% marginal tax rate.

strombofulous 6y ago
40%?! Where do you live? The effective federal income tax at 100k is 22.75%. I don't think any state has a 17.25% effective income tax, certainly not if you only earn 100k.
- arcticbull 6y ago
  If you're making 100K in California, your marginal tax rate is: - Federal: 24% - State: 9.3% - FICA: 7.65% (6.2% social security, 1.45% medicare) - SDI: 1% This gets you to 42%. Your employer matches the FICA payments too, so that's closer to 50% of your take-home pay. Once you make enough to pay off the regressive FICA taxes ($142K) you get bumped back down to "just" the mid-high 30% range briefly, until you hit $163K, then its back up to 40% again.
  - strombofulous 6y ago
    Wow, I had no idea
    - ilikeerp 6y ago
      It's not insane - it's pretty common in most developed countries. The US is a major outlier.
      - titanomachy 6y ago
        In many developed countries, 42% tax would cover healthcare, a pension you can actually live off of, and fully-paid education for all of your children. Californians get none of those things, and I don't really understand what it is that they get over (e.g.) Washingtonians for the extra ~30% in taxes.
        pm90 6y ago
        They get protection by the US military and promotion of Californian business interests throughout the world through Federal institutions. Not to mention: friction free access to a large labor pool and US domestic market etc. I get your point that the US doesn’t provide as much social services as other developed nations. Almost all these nations depend on US hegemony to not have to spend as much on their military. This is a choice that the US made. There are good arguments for scaling back military spending and increasing social spending without compromising US hegemony though, however those choices may not be politically expedient so here we are.
        newswasboring 6y ago
        I don't want to address the hegemony point beyond I disagree on the need or even effectiveness of US military. But I would want to point out the curious phrasing and of your first paragraph and what that says about USA way of thinking. All these points are business targeted while all european points are individual targeted.
        pm90 6y ago
        > But I would want to point out the curious phrasing and of your first paragraph and what that says about USA way of thinking. All these points are business targeted while all european points are individual targeted. I don't think there is anything curious about this way of thinking. And US hegemony plays directly into this! Pre-World Wars, European nations had their colonies and their militaries and the priority of thinking was along similar lines: access to expansive markets, large pools of labor, protection of business interests etc, chiefly through colonies. WW2 changed all of that, reducing European nations to client states (no disrespect) of the US, that funded their reconstruction. Colonialism was no longer allowed, and European nations could not freely pursue foreign markets without competing with US companies, which would always get precedence. With no real way to compete with the US militarily, and with NATO aligning with their immediate geo-political needs anyways, European nations invested heavily on Social Services, rather than blow up their military budgets. This geopolitical equation hasn't changed post WW2 and you have generations of people that consider social services as the primary function of their Government. However, its a fundamental mistake to assume that a Government can provide effective social services without having a strong economy. Strong economies require successful businesses.
  - benjaminl 6y ago
    Don’t forget the 10.25% sales tax. This puts the combined marginal tax rate at 59.85%. (24 + 9.3 + 7.65 + 7.65 + 1 + 10.25)
    - sdenton4 6y ago
      Only if you buy stuff, though. Which was hard this year in particular, and not terribly useful once basic needs are met.
      - Hamuko 6y ago
        But one of the reasons why buying stuff was so hard last year (which I imagine is what you meant) was because people were buying a lot more stuff.
        fnord123 6y ago
        GP is based in UK where lockdowns closed shops. So it was literally hard to buy things when shops are closed.
    - knuthsat 6y ago
      In Croatia the total would be about 63%. If you go through capital gains (no paycheck just profit after corporate tax, capital income tax and VAT) it's 53%. It could go down if some company expenses can be used for your life expenses. In Austria the total is 75%. In Austria going through capital gains would still be 70%. I'm very disappointed at how much money Europe sucks out of my work.
      - passerby1 6y ago
        > I'm very disappointed at how much money Europe sucks out of my work Are you owner of property like apartment or house there? Just wandering, if that makes a significant personal economic difference for owning it in EU.
        6y ago
  - georgeplusplus 6y ago
    This is slightly misleading. The federal tax rate is a tiered system, meaning a portion of your income is taxed at a certain rate and income that exceeds that tier is taxed at a different rate after that and so on. The federal tax rate is much lower if you account for that.
    - beagle3 6y ago
      Op did say “marginal rate”
      - nicoburns 6y ago
        Yes, but you'd be amazed at how many people don't understand what that means. No doubt it's not true on HN, but a lot of people among the general public seem to be under the impression that the effective rate jumps at thresholds.
        learnstats2 6y ago
        I personally know someone who turned down a payrise for this reason.
  - taffer 6y ago
    Shouldn't that be 37%? 1-(1-0,24)*(1-0,093)*(1-0,0765)*(1-0,01) = 0,37
    - sokoloff 6y ago
      No. Those taxes are levied on the gross income, not on the net income after the previous tax has been applied.
  - EVa5I7bHFq9mnYK 6y ago
    Parent message talks about effective tax rate, you talk about marginal tax rate. You are talking about 2 different things.
  - imtringued 6y ago
    So California is basically on par with Germany? Yet all I hear from Americans is how our tax rates are high. A lot of those "taxes" are also not going into the government's budget. They are used to fund specific services exclusively.
overscore 6y ago
That's fairly low by E.U. standards. The marginal rate in Ireland would be 52%.

ChuckNorris89 6y ago

>the mechanism that prevents wealth inequality False, this mechanism only prevents income inequality but not wealth inequality as existing wealth is not taxed much in Europe. For example, inheritances, assets and properties are not taxed much in Europe (people scream double taxation if you propose that) but income is taxed substantially so you'll never be able to save enough to catch up to the upper classes who own assets. So actually, in some European countries, while having low income inequality because of high income taxes, you end up with huge wealth inequality due to untaxed inheritances, assets and overvalued properties rolled over across multiple generations to the point where Germany's top 10% own two thirds of the country's wealth: https://www.iamexpat.de/expat-info/german-expat-news/germanys-richest-10-percent-owns-two-thirds-its-wealth https://www.iamexpat.de/expat-info/german-expat-news/germany... To level the playing field and reduce wealth inequality, a sound policy would be to tax income less and tax inheritances and assets more but fat chance of that ever happening as that would be a blow to the ruling class.

overscore 6y ago
This comment makes the mistake of treating Europe like a country, which it is not. > For example, inheritances, assets and properties are not taxed much in Europe (people scream double taxation if you propose that) but income is taxed substantially so you'll never be able to save enough to catch up to the upper classes who own assets. In Ireland, apart from relatively small tax-free thresholds (€335,000 lifetime from parent to child, for example), gifts and inheritances are taxed at 33%. In the UK, above its (similar) threshold, the rate is 40%. The US Federal Estate tax rate is 40%, but with an enormous $11,580,000 estate threshold, which is orders of magnitude higher than Ireland or the UK. Even though Ireland and the UK have some of the highest inheritance taxes in the world, the EU effective average is still ~14% - double the global average of ~7% and on par with the US, where added State taxes vary the average between 12% and 19%. Source: https://www.uhy.com/uk-imposes-highest-taxes-on-inheritance-of-all-major-economies/ https://www.uhy.com/uk-imposes-highest-taxes-on-inheritance-...
- ChuckNorris89 6y ago
  >This comment makes the mistake of treating Europe like a country, which it is not. Of course it's not, never said it was but cherry picking countries with larger inheritance tax is also a mistake as you can't choose where you pay your taxes as an EU resident. You pay them where your main residence is. So on the other side of the spectrum you have Austria which has high income tax (because socialism and income equality) but basically no inheritance taxes, and taxes on assets are levied on their original purchase price so you end up having countless residents who earn small incomes but are sitting on millions of euros of wealth due to exploding real estate values but only pay 5 Euros tax per year as that's levied against the purchase price from 60 years ago when their grandparents bought it for pennies. So you end up with huge wealth inequality where even people with good incomes pay high taxes and are priced out of the real estate market if they don't come from families of means.