[dkokelley]

> "...is he paying that much more in taxes than he would be if was just a salaried employee at a regular company?"

Not quite. Some taxes are paid by the employer, and some taxes are withdrawn directly from your paycheck. When you are self-employed, you see exactly how Uncle Sam gets both sides of the action.

[wmeredith]

Yeah, this was quite the shocker for me once I started making serious side money. Personal income taxes are about 50% in the US. (Which, by the way, would be totally fine with me if it funded infrastructure and social safety nets. Unfortunately, the vast majority of that goes to wars against nebulous foes, i.e. drugs, terrorism, etc...)

[dragonwriter]

> Personal income taxes are about 50% in the US.

No, they aren't. There are a handful of states where the top marginal rate (combining federal and state rates) is at or above 50%, but that's not the overall rate even for those top earners, and its certainly not the average overall rate in the country.

[001sky]

Its not an unrealistic marginal rate for NYC or perhaps even parts of California.[1] This is a case where 'average' is often misleading. When you take a salary...its a take it/leave it package (X net of tax). When you are self-employed, you are always deciding: do I do another X for another Y in return. At that stage, its all about marginal ROI from your time.

[1] Because of the real estate, many of these types of places are not really 'livable', and you see entry level jobs that offer salaries already at or neat the top tax brackets (despite the fact that these people have few/no assets or real 'net worth').

[dragonwriter]

> Its not an unrealistic marginal rate for NYC or perhaps even parts of California.

The claim was that personal income tax "in the US" was about 50%.

That's very different than saying the truth which is that "maximum marginal income (including payroll) tax rates in the highest-tax US states are around 50%".

> you see entry level jobs that offer salaries already at or neat the top tax brackets

The top US federal marginal rate starts at $400,001 for a single filer; $450,001 for married filing jointly/qualified widow(er), $225,001 for married filing separately, and $425,001 for head of household.

I've never seen anything fairly described as entry-level offering a salary at or near that, even in expensive places like SF.

[001sky]

Fair enough, but by 'the top tax brackets' I meant those sufficient to trigger combined taxation approching 50%,

eg, $90K in California? back of the envelope

28% $87,850 to $183,250 Federal Rate

15.30%* Social Security, self employed

8.8% State-Level taxes

=======

~ 52% Aggregate tax rate (excluding 9% sales tax average).

This is not an average rate, nor does it include the provision of the healthcare mandate. In any event, this is meant to be illustrative only, and the marginal and average dynamics play out differently at higher rates (for a variety of reasons, including tax-sheltering and regressive taxes on payroll and sale/consumption taxes).

[stevenwei]

It doesn't make any sense to add up the highest marginal tax rates like that though.

In your example of someone earning $90k in CA, the federal income tax rate of 28% only applies to the $2150 of income above the threshold of $87,850, the rest is taxed at lower rates according to the lower brackets. The same applies to state taxes, except the brackets are different.

The effective tax rate (e.g. the total amount of tax you pay / your total income) has a lot more meaning, and that one is a lot lower than 50%.

The original claim that started this thread, "Personal income taxes are about 50% in the US", is not true at all.

[dragonwriter]

> 52% Aggregate tax rate (excluding 9% sales tax average).

No, its a 52% combined marginal rate, not a 52% tax rate. And, since we're talking about taxes on income, "excluding 9% sales tax" is a red herring, because sales tax is not a tax on income. (And California's statewide sales tax is 7.5%, not 9%.)

> In any event, this is meant to be illustrative only

And what it fails to do is illustrate that the claim "Personal income taxes are about 50% in the US" is true. the fact that if you choose one of the states with the highest state taxes on personal income (including both income and payroll taxes), the top marginal tax rates on personal income just exceed 50% does not mean that personal income taxes in the US are about 50%. In fact, it demonstrates that personal income taxes in the US are generally substantially less than 50%.

[stonemetal]

Nope. The federal Rate would be much lower. You would be in the 28% tax bracket but your tax rate wouldn't be 28%. [1] Grabbing a random tax calculator on line suggests that at 90K of gross income the highest your federal tax rate could be is about 16.6%.

[1]http://www.calcxml.com/calculators/federal-income-tax-calcul...

[davidw]

Nathan lives in Idaho, IIRC.

[001sky]

There are several states without income taxes and/or sales taxes as well (NV, OR, TX, FL). Depending upon your income stream/sources and lifestyle this is hugely important. Once you retire...for example...you may spend more than you earn...or you may buy a car (that last 10 years). For other people, its real-estate (maintenance) taxes that are a function of asset-bases (often inflated, and not income). {etc}

[davidw]

Yes, Oregon has no sales tax. Whenever I go there (home), I always load up on stuff - the VAT here in Italy is 22%!

[nbouscal]

You are correct, and I'm just nitpicking, but I do think it's worth pointing out that in NYC the effective tax rate can get close to 50% even for relatively entry-level salaries (low six-figures). Federal, State, and Local income taxes, plus FICA taxes... it adds up. For top earners, effective rate can definitely reach 50%. Again, I'm just being pedantic; you're absolutely right that in most of the country the effective rates are nowhere near that high. Sadly, most people just don't understand how marginal rates work.

[stirno]

If you add up all the entitlement programs (Social Security, Medicare, Medicaid, etc.) you'll notice they account for more than 60% of the federal budget. Not sure this leaves a 'vast majority' to fund wars.

[JDShu]

Those are not (supposed to be) paid through our income taxes, that's why we get taxed medicare and social security separately. The "vast majority" description does apply if you look at non-discretionary spending.

Edit: I suppose it could be argued that money that goes to the military doesn't directly mean funding wars. We have bases all over the world after all.

[EdwardDiego]

> Personal income taxes are about 50% in the US.

I'm not American, but every time I look at taxation levels, I come out with a number significantly smaller than that. I presume that America uses progressive taxation, so at what income level does personal income + payroll tax equate to 50% of gross?

[derekp7]

According to the 1040 tax tables, 100,000 gets taxed at 21,454, so that is 21.4%. Add on 15% FICA (if self employed), 5% state tax, and you are up to 41.4%. Now if you own a house that the county assessor says is worth $200K, you are talking about 8K a year in property tax (this will vary by area, but is true for where I'm at in the midwest). That leaves $55,546 out of the 100,000 to spend. Ok, now try to spend it -- you will pay 8% in sales taxes, for another $4443.68. So all you have left is a shade over 51k, out of that initial 100K that you earned. So not quite 50% taxation, but close enough (actually, some sales taxes are higher, such as gasoline, etc).

[EdwardDiego]

That FICA number is high, at least according to Wikipedia.

> Under the SE Tax Act, self-employed people are responsible for the entire percentage of 15.3% (= 12.4% [Soc. Sec.] + 2.9% [Medicare]); however, the 15.3% multiplier is applied to 92.35% of the business's net earnings from self-employment, rather than 100% of the gross earnings; the difference, 7.65%, is half of the 15.3%, and makes the calculation fair in comparison to that of regular (non-self-employed) employees.

The rest of your figures aren't really what I'd consider personal income taxation, although they're definitely interesting. Also interesting is that married people in the US of A experience a tax advantage when filing jointly - not so our tax code, it's very theoretically pure.

[derekp7]

I also didn't include the fact that state income tax, and property tax are deductible from federal income. Also mortgage interest is deductible. So, back of the envelope comes down to closer to 42% taxation.

> The rest of your figures aren't really what I'd consider personal income taxation, although they're definitely interesting

I'd say that sales tax is personal, but property tax maybe not, since that isn't directly related to income. However, it still means that for every dollar that someone pays you to do work, you only get to spend 58 cents.

[EdwardDiego]

> I'd say that sales tax is personal

Does US sales tax apply to purchases by a business?

[nbouscal]

> Also interesting is that married people in the US of A experience a tax advantage when filing jointly

It's not quite that simple. Filing jointly confers a tax advantage when the couple makes relatively little, but becomes neutral as they earn more, and is actually a tax disadvantage when the couple makes a significant amount.

[dragonwriter]

The advantage to filing jointly is actually when the couple makes sufficiently different income, and the penalty is actually when they are close in income.

[EdwardDiego]

> It's not quite that simple.

That could be the catchphrase for the entire US tax code. :D

[stirno]

You'd need to combine a very very high income level (well above $450k/yr with lots of money getting taxed in the highest federal nominal bracket), live in a state with high income tax and have a bad accountant.

In short, if anyone is paying that much in taxes they are very much doing it wrong... and I kind of doubt people are.