[harryh]

I don't believe you. Your marginal tax rate might be 48%, but I would be shocked if your average rate was that high even living in a very high tax area of the US.

I live in NYC (also a very high tax location) and have a pretty decent income and my rate for 2015 was just over 40%. That includes Fed, State, City, FICA & tax preparation costs.

[SilasX]

Unfortunately, decisions are made at the margin[1], so high marginal rates cause extreme distortions and "deadweight loss"[2] -- i.e., a loss of X dollars' worth that corresponds to less than X dollars of gain for the government.

[1] https://en.wikipedia.org/wiki/Marginalism

[2] https://en.wikipedia.org/wiki/Deadweight_loss

[harryh]

I certainly agree that marginal rates are important. I'm just saying that it's important to understand the difference between marginal rate and average rate and not use one where you mean the other.

[SilasX]

Okay, but to invoke the cliche: When people confuse marginal and average tax rates, they're wrong. When people miscalculate their taxes, they're wrong.

But when you trivialize the damage of high marginal taxes because the average rate is lower, you're wronger than both of them put together.

Also, I think your NYC numbers are still wrong since they seem to leave out sales tax. I know that for SF, a typical tech worker's state/federal taxes would be about 40%, and when you throw in the 10% sales tax health mandates, it's right about 45%.

[harryh]

I wasn't trivializing the damage of high marginal tax rates.

Also ya, I left out sales tax (I don't have any precise records on my yearly sales tax expenditures. I suppose I could estimate). I also left out the employer side of FICA which is really a tax I'm paying. I also left out the % of my rent that goes to pay my landlord's property tax. I also left out corporate taxes I'm responsible for as an owner of stock in various public companies.

Truly calculating the total taxes that fall on me as an individual is probably impossible at some level. So I included the taxes that people commonly refer to when talking about "paying their taxes."

[SilasX]

You're right that a lot of those cases are tricky or ambiguous. It makes some calculations all but impossible.

Why would you think sales tax is one such case? Is it really that difficult to back out how you don't have that 8-10% to spend? Does it really justify confidently telling someone they don't know their tax rate because they included it?

(FWIW, the "employer's" side should be included too but can be misleading in conventional contexts because you'd have to restate your pretax income to include that as well, when it is generally not understood to. But it's fairly characterized as part of your burden.)

[harryh]

Ya, I could estimate sales tax for sure. I just don't have precise records like I do for income tax where I can just look at last year's 1040[1]. Instead I would have to think about how much I spent last year on goods & services subject to sales tax. And I don't even really know what's subject to that and not in some cases tbh. I spend a lot on rent and daycare and other things not subject to sales tax. Really it probably only applies to a relatively small % of my spending personally.

Also not all of sales tax really falls on me. Some % falls on the provider of the goods in the form of lower prices. It depends on the price elasticity of the product in question. Taking this into account would only further complicate the question.

[1] I'm a very precise record keeper of my income taxes now after I screwed something up years ago which cost me $$$. I keep everything in a github repository. It's pretty awesome actually. Highly recommended!