[bartart]

It's also worth noting that the top 1% pay about 40% of all income taxes at the federal level, and they earn about 20% of annual income from all sources (http://hdr.undp.org/en/indicators/186106). So classifying 88% of federal revenue as paid by regular workers might be a bit misleading

[onlyrealcuzzo]

99% of the top 1% are "normal workers" like me - engineers at Google - or my cousin - a radiologist - or one of my best friends - an investment banker - or lawyers, or owners of successful small businesses, etc...

These "normal workers" pay a lot of that 40% of the tax bill.

There aren't that many CEOs of Fortune 500 companies and board members, A+ list celebrities, and aristocrats. You're getting into the .01% - that's still 32,000 people!

Chicago Booth put together an article with graphs to really show how much the top 0.01% has diverged [1].

The top 0.01% still pays A LOT of the income taxes - about 5% - but that means, mostly hardworking normal people in the top 1% are paying the other 35% of that 40% share of the tax bill.

It's not like Bill & Melinda Gates are paying 40% of the tax bill by themselves...

[1] https://review.chicagobooth.edu/economics/2017/article/never...

[throwaway2037]

First, I assume when you write "normal workers" that you mean non-executives and non-passive income earners. (Executives can get a lot of equity or dividends that accrue taxes at lower rates; passive income earners use asset depreciation to lessen tax burden.)

The top 1% in the US is ~400K USD.

Real question for OP (and others): What do you think is a reasonable effective income tax rate? (Please do not confuse effective and nominal tax rates!) In my view: "All in" should be about 50-55%. When I say "all in" I mean absolutely everything -- federal, state, local, national pension, national health (if applicable), yada yada yada. That would mean top 1% still have net income (after taxes) of more than 200K USD.

If you look at highly developed economies, it seems hard to provide a healthy social safety net without 50% effective income tax rate on top 1%.

In Hongkong, the top effective tax rate is about 15%. The social safety net is appalling. The number of poor, working, elderly people (collecting cardboard in the street to sell by the kilo to recyclers) is heartbreaking. You would not use the public health system, nor the public school system; nor depend upon the national pension, nor unemployment benefits. One bright spot: The public housing system has served well the working class and below. (I joke that 15% only gets you a good metro system and airport.) Hongkong feels like a semi-feudalistic society.

[carlob]

> Real question for OP (and others): What do you think is a reasonable effective income tax rate? (Please do not confuse effective and nominal tax rates!) In my view: "All in" should be about 50-55%. When I say "all in" I mean absolutely everything -- federal, state, local, national pension, national health (if applicable), yada yada yada. That would mean top 1% still have net income (after taxes) of more than 200K USD.

In my view one of the big problems is that capital gains are taxed less than income from working and they are a proportional tax. The result of that is that once you get to the 0.1 % taxation becomes regressive because a bigger chunk of your income comes from capital gains.

[throwaway2037]

+9000 votes! I agree 110%. I didn't say it, but the 50-55% "all-in" should also include capital gains receiving no special treatment for high-income people.

[Mauricebranagh]

Which special treatment is this ?

Might be more sensible to give smallish tax breaks for CGT to ordinary workers and reform the taxation of worker share options no more crippling tax bills for worthless options.

Id also encourage listed companies to offer UK style share saves to all workers to allow those lower down the food chain to actually get some equity.

[throwaway2037]

You wrote: <<Which special treatment is this ?>>

Good question. For the United States, I reference: https://www.investopedia.com/articles/personal-finance/10151...

If you hold one year or more:

Filing Status: Single

0% rate: Up to $40,000

15% rate: $40,000 to to $441,450

20% rate: Over $441,450

In the above, personally, I would like to remove the brackets for 15% and 20%. My point: For anyone beyond middle class, tax capital gains as regular income.

[GFischer]

I pay more than 55% in effective tax rate, and my income is about 60k USD a year.

I live in Uruguay, South America - my taxes include healthcare and retirement.

It's definitely not ideal and it's crippling my chance of ever owning a home, but it does pay for a lot of social services way beyond what the U.S. provides - key differences being state provided healthcare and education up to and including the university level.

[onlyrealcuzzo]

This sounds like a terrible deal.

In the US - your effective income tax rate could be as low as ~24% on $60k. There is nowhere it would be higher than ~33%.

So your tax rate is AT LEAST 22% higher - and all you're getting is "free" education and healthcare.

=FV(0.075, 40, -13200, 0).

That's $3M by the time you would retire if you invested the difference in taxes in a total market index fund and got average returns. Adjusted for inflation - that's $822k. You could reliably drawdown the equivalent of ~$3.5k per month forever. That's 50% more than you make after taxes now...

And in the US - you would already be getting $3k+ from social security... Plus you'd have free healthcare via Medicare...

Individually, you are unquestionably better off with the lower tax rate in the US. Unless you went to Princeton to study underwater basketweaving without a scholarship. Even if you had ridiculously expensive chronic conditions - there's plans you can get cheaper than $13k per year.

And as a whole you are also worse off.

The cost of "free" education is estimated at $47Bn in the US. That would increase taxes by about 1.1%.

The cost of "free" healthcare is estimated at an additional $1.6Tn. If evenly distributed - that would increase everyone's taxes by about 43%.

That means your tax rate would be as low as ~31% or as high as ~41% -- depending on which state you lived in.

[bryanlarsen]

With a USD60K salary, I assume that the Uruguayan you are responding to is in the 1%. So he's not just paying for his own health care and education, he's probably covering health care and education for ~10 people.

[throwaway2037]

Wow. This is a great reply. Thank you for your honesty. I hope more people will leave valuable, personal stories like you.

Do you feel the healthcare and national pension are high quality ("good value")?

[lenkite]

The important question is: How good is the "free" health care ? And is it fully free or is one charged beyond a point ?

[varispeed]

Hongkong is not free, so I am not sure if this is a valid comparison. People of Hong Kong do not have the same opportunities as people of the US. The problem is how much of the tax payer money is being wasted. I think the absolute maximum tax should be no more than 30% and the goal should be to reduce it to 15% by reducing waste in public sector. I currently pay over 50% and this is demotivating. I am at the point when I consider moving to another country or finding less stressing job, that pays much less. It would be a different matter if I saw that 50% actually benefits me in any way, but I feel like this money goes down the toilet each month.

[johntiger1]

Interesting, I always thought Hong Kong was pretty good.

[thrwhizzle]

>What do you think is a reasonable effective income tax rate? (Please do not confuse effective and nominal tax rates!) In my view: "All in" should be about 50-55%. When I say "all in" I mean absolutely everything -- federal, state, local, national pension, national health (if applicable), yada yada yada.

Who is this for? The “rich” or for everyone else?

An effective rate of 50-55% is obscene. I would relocate for anything approaching 40%.

[onlyrealcuzzo]

Where do you live?

In California - if you don't have a ton of mortgage interest deductions and you count state income tax - you're above 39.5% on $400k. If you count both sides of payroll tax, you're in the mid 40s. And even if you own a home, if you count property tax, you could be close to or above 50%.

The median state income tax is about half of California's at $400k - and property taxes here are somewhat low. Most places - you're gonna be above 40%.

[throwaway2037]

If unclear, the "reasonable effective income tax rate" was for the top 1%.

1) Where do you live?

2) Are you in the top 1%?

3) In your location, what is the effective income tax rate for top 1%?

[thrwhizzle]

Texas.

That would depend on how you classify 1%.

The effective tax rate for an individual earning $400k would be around 31%.

Like I said, even approaching 40% is obscene. 50-55% is absolute thievery. I would relocate from Texas if my effective tax was even close to 40%.

[refurb]

Is this satire?

I mean, you’re pointing your finger at the <1% above you, claiming you’re just “an normal worker” who is shouldered with the burden of paying taxes, yet you’re ignoring the fact you make more money than 99% of people. 99%!

And I love the call out about your everyday working schmuck cousin, you know, the radiologist, who is in one of the highest paid professions and if he’s in the US is likely making close to $500,000 per year. Almost 10x the median US salary.

https://www.salary.com/research/salary/alternate/radiologist...

[bluecalm]

They make more money because they are more productive and their services are highly valued. Those people already bear disproportional burden when it comes to taxes.

I mean, what do you really want? Everyone works according to abilities and everyone is provided for according to their needs?

[stjohnswarts]

"Disproportionate" in raw numbers sure. Disproportionate in quality of life and lifestyle? lol 50% for the 1% is like "damn the government!" 50% for people under median salary is putting them into poverty and likely government assistance to get by.

[refurb]

I’m not arguing the rich need to pay more, I’m arguing that the OP is wrong to argue he’s just a “normal worker” and shouldn’t be paying a large tax burden when he makes more than 99% of the population.

Basically when the OP says “the rich should pay more” I’m saying “ok, but that includes you”

[salawat]

You're misdefining rich I think in the sense it may be being used in this case as a proxy for "companies and taxpayers doing things to obfuscate their actual flow of monetary value".

Even if one makes say 1000000 in income, no equities, and takes the standard deduction, they are not the Rich being lamented here. They would not be doing end runs around tax obligations.

Yes, you blow the minimum wage folks out of the water salary-wise, but it doesn't mean they are in any different a boat than any other tax payer trying to do it right.

Which can actually be surprisingly difficult if you do anything other than basically "money comes in, money goes out". I'm actually somewhat afraid of doing any of the more advanced reading in the tax code, because it'll probably end up with me makimg a few appointments with the IRS to get someone to explain things to me. Their writing style is terrible, and I tend to lose track in the forests of ambiguous antecedents.

I say this as someone who isn't a stranger to reading legal docs or standards for fun.

[aaronchall]

So using your numbers, the top percent of the top percent pay 1/8 of the taxes that the top percent pay, and the remaining 99% of the top percent pay 7/8 of those taxes.

That is still quite disproportionately more.

I pay a big chunk of my income in taxes too. Everyone needs to contribute. There's not enough money otherwise, and demanding that Bill Gates pay more, as much as I dislike him, isn't going to do it (and doesn't seem fair as he's already paying his fair share).

[onlyrealcuzzo]

The top 1% - minus the top 0.01% - are paying 35% of all income taxes. The top 0.01% themselves are paying another 5%. The bottom 99% are paying the remaining 60%.

[roenxi]

That article is saying top 1% income in the US is numbers higher than $400k! The median was something like $50k or $80k last time I checked. Those aren't normal workers, those are exactly there sort of people who are seen as not contributing their fair share. They physically can't be working harder than a median worker but they're getting multiples of the salary.

If someone is going to be supporting society, they are the people with the means.

[tomnipotent]

> Those aren't normal workers

What's your definition of a normal worker? Lawyers, doctors, dentists, pilots, architects and programmers sound like normal workers to me.

This is still millions of people, and I imagine they would think they're normal workers, too. But Fortune 500 CEOs? Well, there's only... 500. Even the combined payroll of the MLB, NBA, NHL, NFL, and MLS is less than 10,000 professional athletes where median pay is $860k, $1.15M, and $8.3M for the NFL, MLB, and NBA respectively.

[aiisjustanif]

> What's your definition of a normal worker? Lawyers, doctors, dentists, pilots, architects and programmers sound like normal workers to me. Please stop acting like these professions average at the 1% threshold. EPI put the top 1% at $737,697 in 2019 and the top 5% at $309,348 [1].

Average Income of those normal workers [2]:

* Lawyer: $148,910

* Dentists (across all specialities): $186,300

* Physicians (across all specialties): $218,850

* Architects: $89,470

* Software engineers (across all specialties): $109,950

* All computer and math specialties: $96,770

* Pilots (All specialties): $163,480 [3]

So these “Normal people” are not even apart of the discussion stop making it seem like all these professions seem like they are in the top 1%. It’s paint a really false picture that skews the conversation at large.

1. https://www.epi.org/blog/top-1-0-of-earners-see-wages-up-157...

2. https://www.bls.gov/oes/current/oes_nat.htm#23-0000

3. I think that number might miss out on all the burn out low level contract airline pilots that make peanuts.

[ABCLAW]

>What's your definition of a normal worker? Lawyers, doctors, dentists, pilots, architects and programmers sound like normal workers to me.

We're not. Lawyer income is not on a normal distribution.

People making >400k a year are owners/partners in a successful firm. Most of these people work hard, yes, but they make their big dollars off leverage; the amount of margin they can accrue from billing out the work of lower ranked lawyers on files they've brought in. Some don't even do legal work. It's very tough to lump these guys in with 'normal workers'.

For the people doing low-cost-jurisdiction bulk lawyer work, they make closer to 25-35$/hr as contractors. Which is almost an order of magnitude less. These are normal workers.

[roenxi]

I'm going to point at the median worker, they're pretty normal.

All the people you're listing aren't necessarily normal workers - observe that some of them are part of the much-vaunted 1%.

I don't really understand the mindset that people are grumpy about the 1% and then interpret that as "oh really they're on the side of the 1% they mean the 0.1%". If anything, it might be the other way around and they mean the 10%.

The argument is there need to be more transfer payments. A mindset that CEOs need to pay but not fabulously wealthy doctors/dentists/programmers is a mystery to me. What even is the argument?

These are people who either need to work for 2 years (pre-tax) to live comfortably for a decade or they're squandering their earnings. They are outrageously wealthy.

[Siira]

400K is not real rich territory. Wealth follows a power law.

[crispyambulance]

If you look at the net worth of people who make ~400K/year in their jobs, it has a huge variation.

This is because some of them launched themselves into a high-earning job and others were born into significant generational wealth. Most people who are born into serious wealth aren't going to stay long (if ever at all) in a sub-100K salary grind regardless of talent and skills.

Incidentally, I happen to know that a good number of the people that get busted for insider trading are highly compensated finance folks that make ~400K. They see their peers with dynastic wealth and the accompanying toys, get envious, and try taking "short cuts".

[Fricken]

The people who have the means have the means because society supports them.

[aiisjustanif]

EPI put the top 1% at $737,697 in 2019 and the top 5% at $309,348 [1].

Average Income of those normal workers [2]:

* Lawyer: $148,910

* Dentists (across all specialities): $186,300

* Physicians (across all specialties): $218,850

* Architects: $89,470

* Software engineers (across all specialties): $109,950

* All computer and math specialties: $96,770

* Pilots (All specialties): $163,480 [3]

So these “Normal people” are not even apart of the discussion stop making it seem like all these professions seem like they are in the top 1%. It’s paint a really false picture that skews the conversation at large.

1. https://www.epi.org/blog/top-1-0-of-earners-see-wages-up-157...

2. https://www.bls.gov/oes/current/oes_nat.htm#23-0000

3. I think that number might miss out on all the burn out low level contract airline pilots that make peanuts.

[onlyrealcuzzo]

You can use data from the IRS [1].

The cutoff for the 1% for households is around $550k. For individuals it's around $400k.

The median salary for radiologists is $422k [2].

The median salary for a Google Sr Engineer is >$350k [3] (not including Google stock appreciation - which pushes this well into the $500k range).

[1] https://taxfoundation.org/publications/latest-federal-income...

[2] https://www.salary.com/research/salary/alternate/radiologist...

[3] https://www.levels.fyi/company/Google/salaries/Software-Engi...

[throwaway2037]

Reading the other comments, I looked closer at your choice of professions.

1) Engineers at Google earning 400K+ USD per year are receiving a large chunk in stock grants. I guess 1/3 to 1/2. (And the last 10 years have been very, very good for equity prices in tech majors.) I assume those receive capital gains tax treatment when sold. If held for at least one year, you receive generous tax savings. Is that fair?

2) Radiologist is probably paid 100% cash or part in deferred (cash) comp. I doubt their receive equity in their public/listed hospital group. Dear Reader Doctors: Please correct me if I am wrong! Also: Are you aware of incomes for highly-skilled specialists in other high-developed countries with good national healthcare systems? I guess about 50% less. Look at Germany, Netherlands, France, Japan, etc. The US is a global outlier on healthcare costs and incomes.

3) Investment banker is a loose term, because you can be a very senior quant on Wall Street can earn 500K USD. Or you can be a M&A i-banker or trader or portfolio manager and easily earn more than 500K USD in good years, but a good chunk will be equity. I guess 1/4 to 1/3. If you make crazy money (millions), surely 50% equity. That said, equity in an investment bank isn't a very good investment. Look at the last ten years compared to big tech. Big tech is killing ibanks on equity returns. Still... that equity grant will get beneficial tax treatment. In this narrow scenario, what benefit does this serve for the wider economy? I see little.

4) Lawyers: Probably paid all cash, possibly deferred comp (cash). Most white shoe law firms that can pay 400K+ USD are not public/listed, so equity isn't the same, even if there is /some/ measure of profit-sharing. Please correct me if I am wrong about public/listed law firms. Just before I hit reply, I thought of another type of special case: corporate counsel. If you work an in-house counsel in New York City, you can easily make 400K+ USD as a senior lawyer. And your company probably pays you some equity. (We can all this i-bank/legal hybrid job.)

5) Small business owners: These are essentially small-time executives who can structure all kinds of non-income payments to themselves and reduce their tax burden. Important: I would also separate intellectual property-heavy businesses (high-value services) vs traditional mom-n-pop shops, like chain of gift shops or pizza restaurants. The return-on-equity is hugely different. That said, in most developed economies, small-to-medium enterprises generate the lion's share of new jobs. (Huzzah to that.) Still, the same tax benefits the owner can structure for themselves will not also be arranged for the "normal workers". Again: Is this fair?

[onlyrealcuzzo]

1 - RSUs are taxed as earned income from the time they vest.

That means - if I was granted $75k worth of Google stock to be paid this year - but it has quadrupled in value... Upon vesting - I'll receive $300k worth of Google stock this year...

I pay "earned" income tax on all $300k of that - meaning, after taxes, I get about ~$185k of that.

If I should hold that for a year - and it goes up 20% in value - I would pay capital gains tax on that 20% / ~$37k just like anyone else who bought and held Google stock for a year.

[throwaway2037]

Thank you for valuable information about RSUs. You are right, the tax advantages are lower than I proposed!

[bradlys]

RSUs and such don’t have capital gains treatment like you might be imagining. If you sell the day you vest, you get income taxed. If you sell a year later, you get income taxed. You will only get capital gains on that which you earned above what you got when you vested. (No different than just selling the stock and buying it again immediately - you will owe income tax even if you still hold the stock btw) Only ISOs and other private equity will get that preferred treatment. (Which is far more risky and the stock is not tradable after all and typically bordering on worthless anyway)

[onlyrealcuzzo]

Interesting. Does your company not withhold shares for taxes when they vest for you? I thought this was required.

Meaning - your second option isn't really an option.

Your company withholds some shares when they vest (usually less than you actually pay in taxes). Then, regardless of whether you sell or hold - at the end of the year - the IRS comes after the rest of the "earned income" taxes you owe.

IFF you do hold the shares - for say another 2 years - you pay only capital gains on your stock appreciation for those 2 years (if there is any). You already paid "earned income" tax on the shares the year you received them from your company.

[throwaway2037]

Thank you for valuable information about RSUs. You are right, the tax advantages are lower than I proposed!

[lovich]

Did 100% of the wealth generated by the 1% come from their income taxed at that rate, or did they have a significant portion of their generated wealth come from capital gains?

Classifying the 1%'s wealth by talking about their income as if its 100% of their wealth might be a bit misleading.

[tomnipotent]

> might be a bit misleading

Does wealth matter when you're talking about taxes? I was under the impression "1%" was in reference to share of adjusted gross income, not total wealth.

[greycol]

In the same spirit it might be worth noting that 'earn about 20% of annual income" could also be considered a bit misleading 'receive about 20% of annual income" would be a less controversial term.

[fastaguy88]

One must be careful about focusing on income taxes - they leave out about 1/3 of federal revenue paid by social security taxes, which are overwhelmingly paid by the bottom 99%. And focusing on federal taxes leaves out state and local taxes, which are also borne by the majority of the populace.