I don't want to be rude, but if you paid 17%, that's basically the minimum income tax rate (10+4+3) for NYC. That's pretty far form the OP's "NYC high earners". Of course, if you got credits, that's orthogonal as normally those credits cost more than they are worth. For instance, the child credit is far from the cast of raising a child.
I can't think of what county you must live in where you'd be able to afford a home in NYS and pay that little in fed+state+local without any special deductions.
If you're a "high earner" there are a panoply of services that allow you to structure your income, wealth appreciation, or other forms of wealth generation in tax-optimized vehicles.
The tax universes at 200k/yr and 500k/yr-2m/yr income look very different.
I believe - someone more financially literate (and far richer!) correct me if I'm wrong - that you can convert some of those wages into various different vehicles and get paid in non-wage forms in certain cases. Correlation != causation of course, but if you're making $500k/year chances are pretty good a large chunk of that is non-wage income such as capital gains, corporate bonuses, trust funds, etc. And even if it was all wage-derived, over time you could easily realize major capital gains on it if you're lucky enough to (a) make a huge chunk 'o change, (b) have low-enough cost of living to be able to move it into investments and then (c) have enough life stability to be able to continue this pattern for several years or decades (or better yet, have grandparents and parents who did then passed the wealth down to you). Even after taxes as high as 50%, with enough raw wage income you can definitely pivot your "margin" into vehicles that yield serious ROI over time, and can even leverage the highly disparate cost of living to your advantage: use NYC's housing market to justify a ridiculous salary, then live super cheap out there somehow (insert hand-waving magic reference here), and use the difference to buy housing out in, say, rural Texas or Kansas before the pandemic, rent it out via property company, reap profit month-after-month.
From there you follow the directions on your shampoo bottle:
401k, HSA, 529s for state taxes. You can give children gifts up to $28k, which is taxed at the kids rate. There are games you can play with home equity loans.
If you own a business there is a thousand ways to do it. One thing I’ve seen is people’s businesses “donate” to private schools and then get “merit” scholarships for their kids. You can accelerate depreciation of up to $500k of assets, etc.
If you’re smart, you’ll sometimes pay less tax in high tax states. Usually the low tax states have higher property and sales tax rates.
Re: 529s, do remember that tax treatment varies widely state to state. I was bummed to learn that California doesn't offer any deductions for 529 contributions.
(Of course the tax treatment for qualified withdrawals is the same regardless of where you live.)
A number of the comments to your post have some vague sense of what's going on.
The key concept is that as you get more wealthy, you will have access to professionals and tax structures that allow you to defer and recharacterize significant portions of your revenue streams into tax advantaged forms. The exact mechanisms change depending on jurisdiction and asset mix.
Advisory services take money to purchase, but their cost, and the cost of various vehicles used to avoid taxes, do not scale linearly with the amount of wealth to shelter.
The panama and various other financial leak disclosure reporting provide a decently accessible area for lay-persons to investigate. If you'd like to see the effects of scale - there's a lot of literature regarding the multi-national corporation side of tax avoidance in academic journals that's easily found via google scholar or sci-hub.
I am not an accountant nor someone who benefits from these deductions, but I'm casually interested. From what I've seen, a few:
1. Charity can be meaningfully different from chipping in $200 to something if you can afford to pay for large parts of a program, meaning things can have your name on them, or you can get events that you care about hosted at your church while saving on your taxes.
2. Tax advantaged accounts everywhere. Max out all retirement of course, but also education accounts for your four kids. Then I think there's some interesting tax advantages to whole life insurance, but I don't know which end those come on.
3. Structuring more of your life as a business. For example, I use my affordable car almost exclusively for work but it's not worth the trouble to track it for deductions because I still do best with standard deduction. Once you pass that, may as well track everything. And you should buy a large SUV instead of a minivan for your family so you can use the more favorable depreciation schedule that encourages SUV use over minivan and car use. Deduct your laptop and phone and phone plan because if you're making a lot of money, there's almost no chance you're using those for personal stuff more than for business. Probably some travel and dining fit as deductions too. Clothing, maybe? This is all completely legitimate (well, maybe it's not because of my ignorance on particular applications, but the spirit is consistent with how deductions work.)
You also may have the ability to structure some of your income as business appreciation so as to not pay taxes yet. True, it's still trapped until you pay taxes, but it's still resources you have available to you that haven't yet caused you to suffer tax expenditures. As a rule, you should never volunteer taxes that you can legally defer.
It'll all add up, though probably not to an overwhelming amount. My impression is that a lot of the exaggerations of low tax rates come from very slimy accounting driven by agendas (to say nothing of expressing taxes in a given year as a fraction of total accumulated wealth.)
> For example, I use my affordable car almost exclusively for work but it's not worth the trouble to track it for deductions because I still do best with standard deduction
That's not how business expenses work. Talk to an accountant, you're leaving money on the table.
Probably depends what you mean by high income. I think someone making 100k will not pay that much and that is considered high in a lot of places. But I am not sure that is considered high in NYC. High is probably more like 150k - 200k+ and that still wont be anywhere near 60%.
I do get to ~40% when you add up federal, state and city. I don't think anyone is really looking at an actual 60%. Maybe 50% if you're making like over a million.
Median household income in NYC for 2020 was $67k [0]. $100k (especially for a single earner, as is often the case in tech) is considered quite high, but not outrageously so if that makes sense? That's "1BR apartment in a nice but not too trendy neighborhood outside of Manhattan" money, so well on the upper side of middle class. I think people tend to overestimate how much money those outside of the tech bubble actually make.
I’m in Quebec so I paid 29% on everything over 66k to federal and my provincial rates were 20% (over 50k), 26% (over 100k), and 29% (over 150k).
We also have a 15% sales tax. I paid more than a 50% effective rate last year. This is the cost of our social safety net. It feels like too much too me and I’ll be relocating next year.
Quebec has one of the higher tax rates in canada. You still get a similar safety net in the rest of canada for lower (albeit still high if you are a high earner) taxes.
Yes, for sure. I’m not sure what causes Quebec to be so much higher. Our health care system has struggled immensely with the pandemic even with so much funding.
We may have a stronger government programs than most (subsidized parental leave, subsided childcare, subsidized French language media, etc), but almost none of them give any benefit to me.
Part of the difficulty to me is our high rates seem to kick in very early. A lot of other regions also have very high top tax brackets, but very few places are starting their top tax brackets at 100k/y income.
yeah here in NZ we pay 39% marginal over $180k, 33% $70k-180k - no state tax - mostly free public health (5$/drug $100 max per year, $30 to visit GP, nothing for hospital/urgent care/everything else)
What we don't do is spen d all our money on a military industrial complex
> What we don't do is spen d all our money on a military industrial complex
I know it's a bit of a meme, but military spending is far from our only problem. We could cut military spending to $0 and not even make a dent in the defecit, let alone be able to cut taxes. Social security, Medicare, and medicaid together make up 42% of federal spending. (Not to mention food assistance, housing assistance, unemployment, or the dozens of other programs). The US spends a lot on social programs! We just don't get much of anything for it.
EDIT: for completeness - defense spending was 12% of the federal budget in 2021.
last year we spent 25% on social welfare (everything from retirement pensions to the dole), 17% on healthcare for all, 13% on education (from preschool to tertiary) - military was ~3%
One big difference of course is that here in NZ the govt owns the hospitals and doesn't run them for profit, no one takes a cut providing insurance either. We bulk buy pharma for the entire country. We also have a no-fault accident insurance scheme that takes personal injury out of the courts (fewer courts, fewer lawyers, smaller law schools in universities)
You paid much more than that. A substantial part of your rent is property taxes. I also doubt you included sales taxes in that number. Then there's more esoteric stuff like tariffs, etc
My parents lived in North County and paid 13k+ a year on a $350k house. Their current place in Tampa is about 400k and the taxes are less than half of what they were in NY. Maybe Florida is a special case?
I'm basing this off of apartments in NYC. I often see ~$600k co-cops with $800 monthly co op fees (of which half is maintenance half is taxes). That seems low to me compared with similarly priced homes elsewhere.
So, I made a comment that it was in the top 10. Then you listed one that was dramatically higher. While I agree that NY doesn't compete for the top spot; your example in no way invalidates my point.
Because they are responding to the OP (who is talking about NYC) and further elaborating on NYC taxes, while describing their (supposed) NYC tax burden.
Prices are determined by supply and demand. Both are rather inelastic, especially in a highly desirable city like NYC, so very of the property taxes gets passed to the renters. If this weren't true, then renters in California would see savings from prop 13, but clearly that isn't happening.
Bobby gave Lisa $10. Lisa then gave $3 to Uncle Sam. What percentage of Bobby's money went to Uncle Sam? 30%. It's that simple. Bobby gave Uncle Sam 30% of his money.
But if property taxes go up you'd still be paying the same rent. I don't see how it makes sense to say you're paying property taxes when they have next to zero effect on your cost of living.
- A substantial part of your rent is property taxes.
Without detailed analysis there's no way to know if this is true, or how true it is. It is entirely possible for an increase in taxes to lead to no increase in end prices or even a drop in rent prices. It's a complex system.
Landlords are price takers. Supply is fixed short/medium run so just charge the maximum people will pay. Property tax rates have next to 0 effect on that.
That's not how things work. When you file your taxes, your rental properties will be treated as a business and the taxes paid there are a business expense. They are deducted from any rental income before the income is counted for the landlord. It is essentially as if the renter is paying the government directly.
"To some economists, the question is moot: Americans already pay a massive “tax” to fund health care, they say. It just happens to go to private insurance companies, rather than the federal government."
...
"Health insurance costs raise the average effective tax rate on American labor from 29 percent to 37 percent, they said."
The point is, the apartment owner pays property tax and collect rent from tenants to pay for that. If property taxes go up, property owners raise rents to compensate. So the tenants are paying the property tax, albeit indirectly.
If one landlord raises the rent, this will tend to make renters go to other landlords who are not raising the rent. But if the taxes are increased on all the landlords, they will likely all raise their rents together and renters can't simply go to another landlord who isn't raising the rent to avoid the increase.
Its actually much more complicated then that, depending on factors such as the propensity of landlords to cease renting out units if their profit decreases, the propensity of renters to shift to smaller dwellings in the face of rent increases, etc.
This happens all the time. Deciding whether a raised rent price is justification for moving out is a complicated and personal process and yet it fuels all of the response to landlords that do this.
Also, 1-year leases are typical in the U.S. (at least Philly/NYC northeast U.S.), so from that contractual perspective, your rent can go up every year and that's totally legal.
Landlords are also competing with each other and tenants have limits based on what they can actually afford to pay. At some point they can be forced to move out of the city to a lower cost of living location, dropping demand. In fact it's entirely possible for a significant increase in tax rates to make rental units a poor investment, causing housing prices to plummet and rents to drop.
Your mistake is assuming that people who bought up housing stock are guaranteed future profit on their speculative investment.
> In fact it's entirely possible for a significant increase in tax rates to make rental units a poor investment, causing housing prices to plummet and rents to drop.
How does this logic work? Building apartments becomes a bad investment. Then developers don't build apartments. And somehow constrained supply is supposed to result in lower prices?
What if developers built too many apartments so there is no shortage? What if the builders all decided to tear down the cheap apartments and build a bunch of Luxury Condominiums when the the housing market is full broke college students who can't even afford to cover the taxes on individual units?
You can say the market won't let it happen, but the second case is the current real estate market for the town I went to school in.
I’m a landlord and yes it is. My taxes doubled last year because of the stupid housing bubble and so we had to raise rent as well. Gotta make a profit here for this investment to be worthwhile.
Sell your building. Your taxes went up because your property value went up. You aren't entitled to a profit on rent. If you sell your building below what it's valued at, you'll still make a hefty profit, and it'll cause the value of other buildings to lower.
Land owners seem to feel entitled to businesses with no risk. Costs are always passed down, even if it makes people homeless. I'm more than happy with you going out of business if an event that makes you richer isn't an event that you can handle in terms of cost.
Maybe if people didn't buy property they don't live in as an investment then things like the stupid housing bubble might not happen in the first place.
Personally I think owning a residence you don't actually live in should just straight up be illegal, but I'm admittedly pretty radical about parts of the system that seem to exist solely to make the rich richer.
So, if I am going to live in an area for a year... I should be required to purchase a house, including all the money, time, and effort that involves? I would hate to live in a world where that was the case.
I have both owned and rented at different points in my life. There have been times where renting was a better choice for me, for a variety of reasons. I am glad that renting is an option.
In a world where there was no rentals there would probably be new things we can't imagine such as community ownerships. The specific thing that shouldn't exist - in parent commentors and myself is that the renter is paying money so that the actual owner pays off the property for their benefit, not the renter.
If some kind of community property system exists (not for ALL properties but a large number of them) then any rent you pay in say New York is also paying down a virtual mortgage you have the the "community" that spans the country. Like a virtual HOA.
> Maybe if people didn't buy property they don't live in as an investment then things like the stupid housing bubble might not happen in the first place.
Sure would be awful for a rental market to exist. Without rental there’d be only be home owners and homeless and that is clearly a better world.
There's no guarantee that builders will use the loosened restrictions to build the most efficient housing. In fact they will most likely build the most profitable housing instead.
The most profitable is on the high end - so marble countertops, stainless steel appliances, etc. All the builders will race to build as much of that as they can, as fast as they can. Then, when the market is glutted, they'll be unable to sell off their investments. Builders will end up with their capital all sunk in cheap land and expensive housing. no one can afford to buy. The builders can't sell the cheap land since they leveraged it to pay for developing the expensive housing. They can't sell the expensive housing because the market has temporarily dried up. The builders will just wait until the glut resolves and continue business as usual.
Meanwhile, there is not really that much more actual housing for the low end market. Some builders made a bunch of money and some craftsmen got extra work building houses they can never afford.
I respect the honest response. In my case, I'm not rich. I’m just trying to build up enough passive income to retire someday. There’s no pension for me. I can’t depend solely on my 401K. I’m just trying to be moderately responsible about my own future.
> My taxes doubled last year because of the stupid housing bubble and so we had to raise rent as well. Gotta make a profit here for this investment to be worthwhile
Surely you see stuff like this is part of what is driving this very bubble?
I mean you’re sort of right. There’s no such thing as a free lunch. So stuff is all ultimately paid by the consumer since that’s the end of the line.
There’s really no way to increase taxes without impacting consumers. Unless you try to limit rents, but then you have other problems with people not wanting to invest in apartment buildings.
That assertion depends on an efficient market though, and that is provably not true - the existence of corporate profits demonstrates this, because in an efficient market everyone makes 0 profit, and any rent-seeking will cause every single one of your customers to flee to a competitor who doesn't rent-seek. Everyone has to price as aggressively as possible given the costs, or lose customers to someone who does, and that means zero profit above the actual cost of production/service.
In a world where corporations make profits, some competitors choose to eat the taxes and retain customers, while others may increase prices and lose some customers, and some customers may eat the increased price and remain even though they're getting a worse deal than before. This is the concept of "consumer surplus" vs "producer surplus", and taxes are cutting into those surpluses differently depending on the specifics of each market participant.
All of this has been debated endlessly by economists, in terms of just how much of corporate taxes get passed along to consumers and so on. And the answer seems to be "not zero, and not 100% either", and everything beyond that is up for debate. So no, not "everything is ultimately paid by the consumer", that is the 100% answer and that's pretty clearly wrong in a market where producer-surplus exists.
In reality, real-estate and rents are probably one of the least-efficient markets imaginable. The frictional costs to buying and selling property, and finding a new tenant who might be a problem/deadbeat/etc, or spending a bunch of time apartment-shopping, picking up your life and packing your stuff, and moving, are immense, and all parties involved are highly emotionally invested as well. Landlords are trying to make a long-term calculation about whether the property is going to appreciate - even if they are losing money today, if they expect to make capital gains in the long term it could be worth it. And all parties are operating with minimal information. Out of all the markets in the world, real-estate and rental living spaces are probably one of the least efficient possible.
Yes. Companies are legal fictions and all people buy goods and services. Some people buy those services through those legal fictions so they consume the fraction of them corresponding to their to ownership fraction. Ultimately a person pays all taxes and all people are consumers.
> Last year I paid 17% of my total income in taxes.
Was that in NYS? It doesn't take a lot of income to hit the state rate of 6.33%, everything after $80,651 filing alone, which isn't unusual downstate. You can add roughly 3.8% to that if you live in NYC and another 22% Federally, all just on income.
If you’re earning 1m + in w2 income, then your effective rate is right about 50% in nyc. If the marginal tax bracket goes to 60%, high earners will definitely be moving. Nyc really has a high opinion of itself if they think people are going to be willing to pay 20% extra in taxes for the privilege of living in a city where garbage is left on the sidewalks and infrastructure is constantly breaking down
How do you manage that? I get 31% taken straight from my paycheck (state + federal income, socsec, medicare, etc, and this is after 401k deduction) and then have sales tax and property tax on top.