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I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny (at least in the US). Are you including 401k contributions a

I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny (at least in the US). Are you including 401k contributions as part of the half not kept?

jtms 6y ago
If you are in NYC and making a livable salary it certainly does stand up to scrutiny.
- zartar 6y ago
  Yes. Was logging in to share the same comment. When I was an engineer in NYC my taxable income was about the following: 1. ~35% federal 2. ~8% state 3. ~3% city Don't forget sales tax!
  - xhkkffbf 6y ago
    And property tax and gas tax and ....
  - adenadel 6y ago
    This is a quibble, but 35% for the top bracket of your income is not the same as a 35% federal tax. You would need to be a quite high income for this to be true since the top bracket currently is 37% and the second highest is 35%. Someone making $200k today has an effective tax rate of 20%. You would need to make $2 million today to have an effective tax rate of 35%. https://smartasset.com/taxes/income-taxes https://smartasset.com/taxes/income-taxes EDIT: Aren't state and local taxes also deductible from federal income taxes? I'm certainly not a tax expert, so correct me if I'm wrong.
    - toast0 6y ago
      > Aren't state and local taxes also deductible from federal income taxes? Yes, but the Trump tax changes put a $10,000 cap on this deduction, which is significantly lower than the standard deduction. Combined with low mortgage interest and the lower cap for new mortgage balances whose interest is deductable, a lot of people went to the standard deduction.
    - triceratops 6y ago
      > This is a quibble, but 35% for the top bracket of your income is not the same as a 35% federal tax. That's not a quibble at all, it's a very important point. The number of people who confuse "tax bracket" with "effective tax rate" is regrettably quite large.
  - RHSeeger 6y ago
    I'm picking the year 2015 because you're clearly talking about the past in your statement, so bear in mind the numbers change over time. In order to hit 8% (8.82%) in NYS in 2015, you needed to make a little over a million dollars a year (single) or 2 million (joint). The next lowest is 6.85%, for 212k single, 318k joint. For federal to hit 35%, you need to make 411k (single or joint.. which makes no sense). So your numbers more or less stand up to scrutiny for marginal income, but I would guess not even close to that for effective tax rate. I don't think it's fair to present your marginal tax rate as "your tax rate" in a discussion about how much of your income you get to keep. That's even more so when it's before you account for deductions.
    - aynyc 6y ago
      Do you consider sales tax, etc as tax?
      - RHSeeger 6y ago
        I do not consider it because the discussion was about how much of your salary you get to keep, which implies income taxes. Sales tax, gas tax, land tax, etc all come later. They can be significant, but aren't part of the discussion of take home salary.
        lobotryas 6y ago
        They absolutely are. You don’t get to artificially limit scope just because it suits you. If you get robbed both at the ATM and on the way home you’re still coming back with less cash!
        RHSeeger 6y ago
        I didn't say I don't consider them to be taxes. I said I don't consider them in this discussion because they're not part of how much of your salary you take home. To look at it from another point of view... If _all_ the money you made came from long term capital gains, the taxes you pay on it would be based on totally different tax rules. Capital gains taxes are certainly impacting how much you "spend" on taxes, but they don't impact how much of your "salary" goes to taxes.... because you don't have a salary.
room500 6y ago
The marginal tax rate can be ~50% for many high-income earners in CA. If you make ~550k, you would be paying 37% to federal and 11-12% to state. Therefore, when thinking about increasing/decreasing my earnings at that margin (raises, changing pre-tax contributions like 401k or FSA, etc), it would be correct to use that 50% number. This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context.
- danans 6y ago
  > This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context. The GP said "a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.", which can only mean "effective tax rate". Although it's a common and dishonest rhetorical tactic of those who oppose taxation to conflate the two when advocating for lower taxation. There's nothing wrong with arguing for lower taxation, but it's wrong to misrepresent the rates you use to argue that.
  - mistrial9 6y ago
    agree (I wrote the offhand comment above)
  - room500 6y ago
    I disagree here. Quite frankly, I don't pay any attention to what my effective tax rate is. It is only brought up when debating politics - it has no bearing on my everyday decisions. Parent poster asked why people talk about 50% tax rate and I responded with the reasoning. The number that does matter to me is my marginal tax rate. That is the number that I have to use when thinking about how my everyday decisions impact how much money I am bringing home. How do I consider 401k? FSA/HSA? Tax-deferred instruments? Charity donations? Additional income (second jobs,etc)? Time to hold stocks (capital gains vs income)? Tax deductions? All of those are based on marginal tax rate. I understand your desire to call out conflation, but I specifically differentiated the two in my comment. I am not misleading anyone Please tell me when you care day-to-day about effective tax rate (other than tax return time and arguing on the internet). Why would you? You can't change it. Marginal tax rate actually impacts your decisions.

I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny (at least in the US). Are you including 401k contributions as part of the half not kept?

jtms 6y ago

If you are in NYC and making a livable salary it certainly does stand up to scrutiny.

zartar 6y ago
Yes. Was logging in to share the same comment. When I was an engineer in NYC my taxable income was about the following: 1. ~35% federal 2. ~8% state 3. ~3% city Don't forget sales tax!
- xhkkffbf 6y ago
  And property tax and gas tax and ....
- adenadel 6y ago
  This is a quibble, but 35% for the top bracket of your income is not the same as a 35% federal tax. You would need to be a quite high income for this to be true since the top bracket currently is 37% and the second highest is 35%. Someone making $200k today has an effective tax rate of 20%. You would need to make $2 million today to have an effective tax rate of 35%. https://smartasset.com/taxes/income-taxes https://smartasset.com/taxes/income-taxes EDIT: Aren't state and local taxes also deductible from federal income taxes? I'm certainly not a tax expert, so correct me if I'm wrong.
  - toast0 6y ago
    > Aren't state and local taxes also deductible from federal income taxes? Yes, but the Trump tax changes put a $10,000 cap on this deduction, which is significantly lower than the standard deduction. Combined with low mortgage interest and the lower cap for new mortgage balances whose interest is deductable, a lot of people went to the standard deduction.
  - triceratops 6y ago
    > This is a quibble, but 35% for the top bracket of your income is not the same as a 35% federal tax. That's not a quibble at all, it's a very important point. The number of people who confuse "tax bracket" with "effective tax rate" is regrettably quite large.
- RHSeeger 6y ago
  I'm picking the year 2015 because you're clearly talking about the past in your statement, so bear in mind the numbers change over time. In order to hit 8% (8.82%) in NYS in 2015, you needed to make a little over a million dollars a year (single) or 2 million (joint). The next lowest is 6.85%, for 212k single, 318k joint. For federal to hit 35%, you need to make 411k (single or joint.. which makes no sense). So your numbers more or less stand up to scrutiny for marginal income, but I would guess not even close to that for effective tax rate. I don't think it's fair to present your marginal tax rate as "your tax rate" in a discussion about how much of your income you get to keep. That's even more so when it's before you account for deductions.
  - aynyc 6y ago
    Do you consider sales tax, etc as tax?
    - RHSeeger 6y ago
      I do not consider it because the discussion was about how much of your salary you get to keep, which implies income taxes. Sales tax, gas tax, land tax, etc all come later. They can be significant, but aren't part of the discussion of take home salary.
      - lobotryas 6y ago
        They absolutely are. You don’t get to artificially limit scope just because it suits you. If you get robbed both at the ATM and on the way home you’re still coming back with less cash!
        RHSeeger 6y ago
        I didn't say I don't consider them to be taxes. I said I don't consider them in this discussion because they're not part of how much of your salary you take home. To look at it from another point of view... If _all_ the money you made came from long term capital gains, the taxes you pay on it would be based on totally different tax rules. Capital gains taxes are certainly impacting how much you "spend" on taxes, but they don't impact how much of your "salary" goes to taxes.... because you don't have a salary.

room500 6y ago

The marginal tax rate can be ~50% for many high-income earners in CA. If you make ~550k, you would be paying 37% to federal and 11-12% to state. Therefore, when thinking about increasing/decreasing my earnings at that margin (raises, changing pre-tax contributions like 401k or FSA, etc), it would be correct to use that 50% number. This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context.

danans 6y ago
> This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context. The GP said "a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.", which can only mean "effective tax rate". Although it's a common and dishonest rhetorical tactic of those who oppose taxation to conflate the two when advocating for lower taxation. There's nothing wrong with arguing for lower taxation, but it's wrong to misrepresent the rates you use to argue that.
- mistrial9 6y ago
  agree (I wrote the offhand comment above)
- room500 6y ago
  I disagree here. Quite frankly, I don't pay any attention to what my effective tax rate is. It is only brought up when debating politics - it has no bearing on my everyday decisions. Parent poster asked why people talk about 50% tax rate and I responded with the reasoning. The number that does matter to me is my marginal tax rate. That is the number that I have to use when thinking about how my everyday decisions impact how much money I am bringing home. How do I consider 401k? FSA/HSA? Tax-deferred instruments? Charity donations? Additional income (second jobs,etc)? Time to hold stocks (capital gains vs income)? Tax deductions? All of those are based on marginal tax rate. I understand your desire to call out conflation, but I specifically differentiated the two in my comment. I am not misleading anyone Please tell me when you care day-to-day about effective tax rate (other than tax return time and arguing on the internet). Why would you? You can't change it. Marginal tax rate actually impacts your decisions.