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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, whe

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.
  - danans 6y ago
    > Quite frankly, I don't pay any attention to what my effective tax rate is. It is only brought up when debating politics > 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? I didn't suggest that you should pay attention to effective tax rate, nor give any guidance about personal finance. You're arguing a totally different subject (personal tax optimization strategies) than the one I addressed (misrepresentation of the effective tax rates in CA). The GP's post I replied to was specifically political in its misrepresentation of marginal tax rates as the effective tax rates, which is why I wrote: > 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".
    - room500 6y ago
      Fair enough. I was not responding to GP - only the parent who asked: > I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny Elsewhere on HN, many people do use their marginal tax rate (and do so correctly). I was only explaining how that 50% is a good benchmark to use and why so many use it. You are correct that if I was responding to GP, my comment would be misleading. Unfortunately, I think my brain short-circuited when I saw "Clinton" in GP's post and I skipped by it :)

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.
- danans 6y ago
  > Quite frankly, I don't pay any attention to what my effective tax rate is. It is only brought up when debating politics > 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? I didn't suggest that you should pay attention to effective tax rate, nor give any guidance about personal finance. You're arguing a totally different subject (personal tax optimization strategies) than the one I addressed (misrepresentation of the effective tax rates in CA). The GP's post I replied to was specifically political in its misrepresentation of marginal tax rates as the effective tax rates, which is why I wrote: > 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".
  - room500 6y ago
    Fair enough. I was not responding to GP - only the parent who asked: > I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny Elsewhere on HN, many people do use their marginal tax rate (and do so correctly). I was only explaining how that 50% is a good benchmark to use and why so many use it. You are correct that if I was responding to GP, my comment would be misleading. Unfortunately, I think my brain short-circuited when I saw "Clinton" in GP's post and I skipped by it :)