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There seems to be a misunderstanding. The maximum payroll tax is 42% for incomes above 62k Euros. The part of income below has a tax excempt amount of ~10k, th

There seems to be a misunderstanding. The maximum payroll tax is 42% for incomes above 62k Euros. The part of income below has a tax excempt amount of ~10k, then a linear progressive tax. (There is an rate of 45% for incomes over 250k, but let’s skip that for the argument.) There are also some tax reducing things, but let’s say you have a taxable gross income in the range of 60k. The deductions are as follows: - 25% payroll tax (which is the tax _average_, only the amount above 62k is taxed with 42%) - 7.3% healthcare (or 14.6% if you are self-employed) - some percentage for other public insurances Gives you around 65% net income, from which you pay 19% VAT for most things you buy as consumer. But e.g. rent doesn’t have a VAT. If your income is higher (as I wrote in my other comment), the healthcare / public insurance cost is capped, so every Euro above 62k is taxed with 42 (or 45) percent. If your income is lower you simply pay less taxes (relatively) and might have 80% or more net income. Edit: forgot about tax average …

vc8f6vVV 4y ago
Yep, but you need to count employer paid taxes too to get the whole picture. Tax base will be different (+ 7.3% healthcare + 9.3% pension + 1.5% unemployment), so if your base is ~1.17 of your "official" base, the effective tax becomes (0.35 + 0.17) / 1.17 = 45% (leaving you with 55%). Which is in line with the chart I posted. Now here's how it works in the US. Let's take my $170K household income (it's 2x of state median in Massachusetts, but 1x in my town). My effective tax rate (without medical insurance and without employer part of payroll taxes) is 33%, but with employer taxes and after tax base adjustment it's going to be (0.33 + 0.08) / 1.08 = 38% (I'm ignoring social security cap here, but it won't make a big difference). But we left out a very important part, and it's medical insurance. Let's add 24K/year (14%) to the mix, then it becomes (0.33 + 0.08 + 0.14) / 1.22 = 45%. Oops! Sounds like I'm paying the same percentage as in Germany. Sure, I have 2x of median, but for 1x things are getting even more ugly, because 24K will stay the same, and while the income tax is lower, medical will take its part and more. Of course I still bring home more than an average German family, yet expenses are different too so it's hard to compare. Sure, I can buy more junk, and I have a bigger home so I still have some place to live after I placed all that junk :) But to the original comment: > The American lower and middle classes pay a lot less of their incomes - that would be the group that would have to pay for an American welfare state. That won't go over well... No, American lower and middle class doesn't pay "a lot less of their incomes", it's simply not true.
- pclmulqdq 4y ago
  Now do the VAT. Almost everyone who does the math on this (counting healthcare as a tax in the US) finds that only considering the income portion of your taxes, it's about equal. In most places in Europe, you also have the VAT acting as an extra tax. Your tax burden would be a lot higher. Also, you must be thinking of your marginal rate being 33% - your federal taxes should be under 20% of your income at $170k, even if filing as single. In Germany, your tax rate would be about 27%.
  - vc8f6vVV 4y ago
    Agree on VAT, but MA also has 6.25% sales tax which I didn't consider, that is if you want to start from revenue. So the difference will be less than 19%. Also VAT in Germany is not 19% on everything, there are exemptions and low rate of 7%. 33% is not a marginal rate, it's an effective tax rate (filing jointly) including payroll taxes which are deducted from my wages, I mentioned it. Also we have a state tax in MA which is also included in 33%. In any case there are other taxes too (e.g. gas excise, vehicle excise, property tax etc.), so I'm not trying to compare the whole tax burden, that would be too much for HN. But regarding payroll taxes -- they are pretty close even if you consider VAT, certainly not a "lot less", it's a myth propagated by politicians. So the question is: we pay (almost) "welfare state" taxes, where is my part of a welfare state?
    - pclmulqdq 4y ago
      Yeah, you live in a high-tax state - counting that and payroll tax would make it to 33%. However, you can deduct a good fraction of that tax (actually all of it) from your federal taxes. Also, you included the cost of your healthcare in your calculation, so you are getting "welfare state" benefits for that cost. As to your taxes, those are paying for a welfare state for people who are less well off than you. I'm pretty sure you are in the 90th percentile on income, by the way, so you're not actually in the lower class, and arguably not even the middle class (although that level of income in a rich state like MA feels middle class). All those other taxes exist in Germany too, by the way, and are much higher.

vc8f6vVV 4y ago

Yep, but you need to count employer paid taxes too to get the whole picture. Tax base will be different (+ 7.3% healthcare + 9.3% pension + 1.5% unemployment), so if your base is ~1.17 of your "official" base, the effective tax becomes (0.35 + 0.17) / 1.17 = 45% (leaving you with 55%). Which is in line with the chart I posted. Now here's how it works in the US. Let's take my $170K household income (it's 2x of state median in Massachusetts, but 1x in my town). My effective tax rate (without medical insurance and without employer part of payroll taxes) is 33%, but with employer taxes and after tax base adjustment it's going to be (0.33 + 0.08) / 1.08 = 38% (I'm ignoring social security cap here, but it won't make a big difference). But we left out a very important part, and it's medical insurance. Let's add 24K/year (14%) to the mix, then it becomes (0.33 + 0.08 + 0.14) / 1.22 = 45%. Oops! Sounds like I'm paying the same percentage as in Germany. Sure, I have 2x of median, but for 1x things are getting even more ugly, because 24K will stay the same, and while the income tax is lower, medical will take its part and more. Of course I still bring home more than an average German family, yet expenses are different too so it's hard to compare. Sure, I can buy more junk, and I have a bigger home so I still have some place to live after I placed all that junk :) But to the original comment: > The American lower and middle classes pay a lot less of their incomes - that would be the group that would have to pay for an American welfare state. That won't go over well... No, American lower and middle class doesn't pay "a lot less of their incomes", it's simply not true.

pclmulqdq 4y ago
Now do the VAT. Almost everyone who does the math on this (counting healthcare as a tax in the US) finds that only considering the income portion of your taxes, it's about equal. In most places in Europe, you also have the VAT acting as an extra tax. Your tax burden would be a lot higher. Also, you must be thinking of your marginal rate being 33% - your federal taxes should be under 20% of your income at $170k, even if filing as single. In Germany, your tax rate would be about 27%.
- vc8f6vVV 4y ago
  Agree on VAT, but MA also has 6.25% sales tax which I didn't consider, that is if you want to start from revenue. So the difference will be less than 19%. Also VAT in Germany is not 19% on everything, there are exemptions and low rate of 7%. 33% is not a marginal rate, it's an effective tax rate (filing jointly) including payroll taxes which are deducted from my wages, I mentioned it. Also we have a state tax in MA which is also included in 33%. In any case there are other taxes too (e.g. gas excise, vehicle excise, property tax etc.), so I'm not trying to compare the whole tax burden, that would be too much for HN. But regarding payroll taxes -- they are pretty close even if you consider VAT, certainly not a "lot less", it's a myth propagated by politicians. So the question is: we pay (almost) "welfare state" taxes, where is my part of a welfare state?
  - pclmulqdq 4y ago
    Yeah, you live in a high-tax state - counting that and payroll tax would make it to 33%. However, you can deduct a good fraction of that tax (actually all of it) from your federal taxes. Also, you included the cost of your healthcare in your calculation, so you are getting "welfare state" benefits for that cost. As to your taxes, those are paying for a welfare state for people who are less well off than you. I'm pretty sure you are in the 90th percentile on income, by the way, so you're not actually in the lower class, and arguably not even the middle class (although that level of income in a rich state like MA feels middle class). All those other taxes exist in Germany too, by the way, and are much higher.