[sguo35]

Lower income tax allows high earning engineers to found their own companies and become angel investors. This builds the startup ecosystem and makes it more self sustaining; new startups receive angel funding from prior employees that are moderately wealthy, and when they get big they fund the next generation. A social safety net is not a substitute for this because you can’t invest government welfare into your company.

As for regulation, [1] suggests EU employment regulations for performance can require documented performance improvement plans before firing an employee is permitted. This basically makes early stage startups untenable, as you can’t easily remove employees that are incompatible with the company’s goal. For example, if you suddenly pivot you can’t just let go of an entire product line’s employees in a week. A recent example of this happening that made it to the HN front page is Gumtree laying off most of their employees a few years back. The trade off is obviously employment stability for employees, but in a hot labor market like software engineering there is not much downside to decreased stability.

Ultimately startups provide competition for big tech and drive up salaries, since if big tech doesn’t pay high enough people will flock to startups that will eat the big tech company’s lunch. That ecosystem doesn’t exist in Europe at least partially because of high income taxes and burdensome labor regulations.

[1]: https://www.saplaw.co.uk/brexit-articles/669-dismissing-an-e...

[iso1631]

Income taxes for a $500k/year person in California is $210k

Income taxes for a $500k/year person in Arkansas is $196k

Income taxes for a $500k/year person in the UK $220k - but that includes healthcare

Why isn't Arkansas the centre of the development world? Does skipping healthcare and increasing your takehome pay by 3% really make a difference?

sources:

https://goodcalculators.com/us-salary-tax-calculator/

https://listentotaxman.com/366000

[sguo35]

I said it was partially responsible; it is by no means even close to the sole factor by which startup ecosystems are formed. Arkansas lacks in education, research, and a number of other metrics that make it undesirable to develop in. Income taxes are only one part of the tax equation as well, since employers pay a larger chunk of overall taxes in France and other EU countries [1] compared to the US. Again, an employer (or startup) being forced to pay very high taxes on worker income gives a lot of incentive to reduce worker income and makes it more difficult for cash strapped startups to find personnel. Factoring in the employer side makes the tax difference more in the range of 10-20%, not 3%. That difference gets passed on to the worker, either in cash for large companies or in stock options for startups, since the software job market is highly competitive.

Healthcare costs for FAANG and other big tech employees (such as those that would be making $500k) are on the order of $2000/year or less. The company I currently work for covers all health insurance costs for me and I can choose to enroll dependents at a small cost per month. Again, adding high healthcare costs here for an engineer making $500k is unrealistic.

[1]: https://www.crfb.org/blogs/us-highest-taxed-nation-world

[iso1631]

An company in California spending $500k a year on an engineer will get the employee about $290k a year

An company in the UK spending $500k a year on an engineer will get the employee about $250k a year

An company in California spending $200k a year on an engineer will get the employee about $147k a year

An company in the UK spending $200k a year on an engineer (gross salary £130k plus £17k employer NI) will get the employee about $107k a year

Its not taxes that keep the salaries "down" in the UK

[sguo35]

Hate to break it to you but... $40k a year in extra income is a lot of money. Taking your numbers, 147k is 37% higher than 107k. That money has higher order effects more than just the 40k the employee gets, since all else equal higher salaries attract better talent and winner take all market dynamics mean only the best companies make a lot of money. You might note that Silicon Valley salaries are much higher now than in the 1990s and early 2000s, and this kind of snowball effect is a partial contributor to that. Also, 37% is a LOT and even if you add healthcare and miscellaneous costs that gap is still massive. I would consider anything more than 10% a big difference.

Your own numbers show taxes are absolutely one cause of lower salaries in the U.K., although certainly I don’t claim they’re the only cause.