I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny (at least in the US). Are you including 401k contributions as part of the half not kept?
This is a quibble, but 35% for the top bracket of your income is not the same as a 35% federal tax. You would need to be a quite high income for this to be true since the top bracket currently is 37% and the second highest is 35%. Someone making $200k today has an effective tax rate of 20%. You would need to make $2 million today to have an effective tax rate of 35%.
> This is a quibble, but 35% for the top bracket of your income is not the same as a 35% federal tax.
That's not a quibble at all, it's a very important point. The number of people who confuse "tax bracket" with "effective tax rate" is regrettably quite large.
> Aren't state and local taxes also deductible from federal income taxes?
Yes, but the Trump tax changes put a $10,000 cap on this deduction, which is significantly lower than the standard deduction. Combined with low mortgage interest and the lower cap for new mortgage balances whose interest is deductable, a lot of people went to the standard deduction.
I'm picking the year 2015 because you're clearly talking about the past in your statement, so bear in mind the numbers change over time.
In order to hit 8% (8.82%) in NYS in 2015, you needed to make a little over a million dollars a year (single) or 2 million (joint).
The next lowest is 6.85%, for 212k single, 318k joint.
For federal to hit 35%, you need to make 411k (single or joint.. which makes no sense).
So your numbers more or less stand up to scrutiny for marginal income, but I would guess not even close to that for effective tax rate. I don't think it's fair to present your marginal tax rate as "your tax rate" in a discussion about how much of your income you get to keep. That's even more so when it's before you account for deductions.
They absolutely are. You don’t get to artificially limit scope just because it suits you. If you get robbed both at the ATM and on the way home you’re still coming back with less cash!
I didn't say I don't consider them to be taxes. I said I don't consider them in this discussion because they're not part of how much of your salary you take home.
To look at it from another point of view... If _all_ the money you made came from long term capital gains, the taxes you pay on it would be based on totally different tax rules. Capital gains taxes are certainly impacting how much you "spend" on taxes, but they don't impact how much of your "salary" goes to taxes.... because you don't have a salary.
The marginal tax rate can be ~50% for many high-income earners in CA. If you make ~550k, you would be paying 37% to federal and 11-12% to state.
Therefore, when thinking about increasing/decreasing my earnings at that margin (raises, changing pre-tax contributions like 401k or FSA, etc), it would be correct to use that 50% number.
This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context.
> This is obviously incorrect if you wanted to talk about effective tax rate. But using effective tax rate is also incorrect when changing marginal income. So it depends on context.
The GP said "a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.", which can only mean "effective tax rate".
Although it's a common and dishonest rhetorical tactic of those who oppose taxation to conflate the two when advocating for lower taxation. There's nothing wrong with arguing for lower taxation, but it's wrong to misrepresent the rates you use to argue that.
I disagree here. Quite frankly, I don't pay any attention to what my effective tax rate is. It is only brought up when debating politics - it has no bearing on my everyday decisions. Parent poster asked why people talk about 50% tax rate and I responded with the reasoning.
The number that does matter to me is my marginal tax rate. That is the number that I have to use when thinking about how my everyday decisions impact how much money I am bringing home. How do I consider 401k? FSA/HSA? Tax-deferred instruments? Charity donations? Additional income (second jobs,etc)? Time to hold stocks (capital gains vs income)? Tax deductions?
All of those are based on marginal tax rate. I understand your desire to call out conflation, but I specifically differentiated the two in my comment. I am not misleading anyone
Please tell me when you care day-to-day about effective tax rate (other than tax return time and arguing on the internet). Why would you? You can't change it. Marginal tax rate actually impacts your decisions.
> Quite frankly, I don't pay any attention to what my effective tax rate is. It is only brought up when debating politics
> Please tell me when you care day-to-day about effective tax rate (other than tax return time and arguing on the internet). Why would you?
I didn't suggest that you should pay attention to effective tax rate, nor give any guidance about personal finance. You're arguing a totally different subject (personal tax optimization strategies) than the one I addressed (misrepresentation of the effective tax rates in CA).
The GP's post I replied to was specifically political in its misrepresentation of marginal tax rates as the effective tax rates, which is why I wrote:
> The GP said "a 20-something engineer at a six-figure salary can tell you how much of that they get to keep.", which can only mean "effective tax rate".
I was not responding to GP - only the parent who asked:
> I often see this “half” income lost to taxes figure on HN and it often doesn’t stand up to scrutiny
Elsewhere on HN, many people do use their marginal tax rate (and do so correctly). I was only explaining how that 50% is a good benchmark to use and why so many use it.
You are correct that if I was responding to GP, my comment would be misleading. Unfortunately, I think my brain short-circuited when I saw "Clinton" in GP's post and I skipped by it :)
