

Marginal income tax rates for a single California resident (2007) - tomsaffell
http://dbaron.org/views/taxes-2007.html

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petercooper
Here's a similar graph for the UK (but by total tax paid rather than
marginal):

[http://upload.wikimedia.org/wikipedia/commons/2/23/UK_tax_NI...](http://upload.wikimedia.org/wikipedia/commons/2/23/UK_tax_NIC_percentages.svg)
(or if your browser won't do SVG, this is almost the same:
[http://www.reviewmylife.co.uk/data/2008/0901/percentage-
of-i...](http://www.reviewmylife.co.uk/data/2008/0901/percentage-of-income-as-
tax-08-09.gif))

It's funny that the UK - being European - has a reputation for high taxes and
"socialism." There's a lot I don't like about the UK but the taxes are mostly
fair (it's the rules for ancillary tax issues that are messed up). The taxes
there even include emergency medical expenses.

Mr. Californian earning $50k would be at ~42% on the main post's graph. Mr.
Brit earning £34k (roughly equivalent) would be ~26% on the UK graph (or even
less if he were self employed!). Hmm.. perhaps sky high gas taxes and 17.5%
VAT are a little more bearable for me now.. :-)

[Note: I ballsed up in that last paragraph. The CA chart was marginal, not
total like the UK graph. The UK marginal rate at £34k would be 20% for income
tax (<http://www.hmrc.gov.uk/rates/it.htm>), 11% for NICs. So 31% vs 42%.
However, at £35k the marginal rate would be 40% + 11% NIC == 51%. At £40k,
however, the marginal rate would be 40% + 1% NIC == 41%. Who said this was
easy??]

~~~
dschobel
Wouldn't fair taxes, strictly speaking, be a horizontal line?

~~~
brc
You've just described a flat tax rate.

<http://en.wikipedia.org/wiki/Flat_tax>

You can count me into the people who support flat tax rates, if for no other
reason to stop the pointless millions of hours of productive time wasted
trying to rort the system. While people will always cheat, if all income is
taxed at a flat rate, at the source, then the incentive to spend money on tax
accountants falls.

~~~
petercooper
The Negative Income Tax seems like an interesting flat-tax proposal that could
even satisfy those in favor of progressive taxation for political reasons:
<http://en.wikipedia.org/wiki/Negative_income_tax>

~~~
jonshea
See also the Bradley X Tax, which is a value-added tax melded with an income
tax. The income tax can be as progressive as you like, and the VAT is
equivalent to a flat sales tax.

<http://en.wikipedia.org/wiki/X_tax>
<http://www.princeton.edu/~ceps/workingpapers/93bradford.pdf>

------
dbaron
Interesting to see this on HN a little over 2 years after I wrote it.

My main point wasn't so much about the magnitude of the taxes, but about the
shape of the graph. Most of what gives this graph its bizarre shape is a
result of the federal laws, not state ones; I just happened to be computing
for a California resident because that's where I live, so I had the tax forms
in front of me. (And it's also the largest state by population.)

(I'd also note that state-to-state comparisons of taxes aren't really fair
without adding local taxes too, since different states have different
relationships between the amount of money spent by the state government and
local governments. In California, specifically, it's very hard to raise local
(property) taxes, so much of education funding comes from the state
government. In many states, education would be funded much more by local
taxes.)

~~~
jacoblyles
Policy is getting more and more irrational over time. It's hard to discern any
rational or ideological motivation behind much of it nowadays. It'll probably
get worse before it gets better.

------
rmorrison
It's even worse than this if you're self employed, because you have to pay an
additional 6.2% for the employer's portion of social security. Ouch.

Edit: I just moved to CA in 2009, and am now working full time for my own
bootstrapped startup. I also happened to get married in 2009, which is an
additional tax burden. The taxes are painful. All in all, I feel like there is
certainly a negative incentive to work for oneself, especially while
bootstrapping and struggling to pull in enough money to pay the bills. We're
motivated and are really enjoying it, but I would much rather see tax
incentives for founding startups.

~~~
bd_at_rivenhill
Hmm, in a relative sense, you're doing it wrong. You should be comparing
yourself to the compensation of an employee after adding the employer's
portion of the social security and medicare taxes back in. This calculation
represents the true cost of the employee's labor to the employer, who is
indifferent between whether the money is paid to the employee or to the
government. This is why it makes no sense to me to say "the employer's
portion" because the employee really bears the burden.

~~~
_delirium
On the last point: does that actually happen, though? That's what idealized
economic theory would predict, but large corporations' internal structure is
quite far from idealized economic theory. My guess would be that if you were
able to set up some experiment where one employee cost $100k while somehow
having $0 payroll taxes, while another employee cost $90k plus $10k in payroll
taxes, the employer would, more often than not, hire the $90k employee.

This happens already, I believe, as regards families. Employees with families
cost more in health-insurance benefits than single employees, if the employer
offers to subsidize a percentage of health insurance (as most do). But
employers don't pay single employees of equal qualifications commensurately
more, despite what economics would predict.

~~~
kscaldef
I don't believe companies can legally discriminate based on family status,
either in hiring or pay. However, they can, and do, make people with families
pay substantially higher premiums for health care. At my company, a employee
w/ family pays 7 times as much out of their paycheck for health insurance than
a single employee does.

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philwelch
Thought experiment for the economically minded: Labor has a backwards-bending
supply curve. Do heavily progressive tax rates flatten out the backwards bend?

(If this comment makes absolutely no sense to you, see
[http://en.wikipedia.org/wiki/Backward_bending_supply_curve_o...](http://en.wikipedia.org/wiki/Backward_bending_supply_curve_of_labour)
and <http://en.wikipedia.org/wiki/Supply_and_demand> for context).

------
Scott_MacGregor
California taxes and business red tape are why we chose Austin over Silicon
Valley. Texas just seems a lot more business freindly in many ways.

~~~
rdl
I am definitely looking at Austin and Seattle, and partially-in-Nevada, as
options to California.

------
uuilly
There are few places on earth with the natural, intellectual and creative
abundance of California. It's absolutely inexcusable that we are in this
situation.

~~~
stretchwithme
I agree. With all the brains, you'd think we wouldn't let the government abuse
us so much.

perhaps its just the fact that California is so huge and local control over
expenditures is really, really gone. Its much easier to use people when
they're far away and not your neighbors. Its a lot harder to see exactly how
you're being bled dry when there are 18 layers of obfuscation.

~~~
jacoblyles
It suffers from the same issues that the federal government does: democracy
doesn't scale. The larger the task of governing, the harder it is, the more
room for graft and waste, rent-seeking and inefficiency.

The US is the largest economy in the world and last I checked California is
the 5th. Places like Sweden have higher taxes, but they also have a much more
manageable task of governance and more efficient public sectors. You put some
tax money into the Swedish government and you might get some valuable services
out of it. You give some to Uncle Sam or Uncle Arnold, and it is disappearing
in some corporate/union/special interest pocket through some thousand-page
bill.

~~~
stretchwithme
exactly. the smaller the country, the better run it seems. I like
Switzerland's model.

its impossible for someone to siphon off resources when the democracy consists
of 10 people and almost certain to happen when there's 50 million.

Of course, the naysayers will tell you that complex societies are tough to
manage and require more government, but that's bunk. It should require less
government, as there is far less border per person to defend.

------
_delirium
Part of the problem leading to the flat curve is that while California's rate
is technically progressive, it ramps up very fast and is flat past that: all
the brackets are below $45k.

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megablast
I guess this is why only rich people care about tax changes, because the rules
are so complex, poor people don't have the time to study them. Rich people
don't have the time to study them either, but the differences can be so great,
it is worth it for them to hire an expert.

------
pragmatic
I'd be more interested in the new effective tax rate in California or other
"high tax" states.

------
stretchwithme
ridiculously high. but at least those who work 80 hours a week aren't taxed
more per hour than those who work 40. I guess there's some justice in the
world.

you'd be surprised at the number of people who think just because you work
more, you should pay more. as if one exists for the convenience of others

~~~
jrp
What do you mean about the 80 vs 40 hrs/wk? That working more will (naturally)
get you more money, so you pay more taxes? Or some kind of "hard-worker" tax
where they tax you based directly on effort? I haven't heard any of these
proposals.

~~~
stretchwithme
I was referring to the fact that worker A at Burger King making $5/hour for 40
hours shouldn't have to pay a higher tax rate on the extra hours than on the
first 20.

Its simply crazy unfair that if spend the second 20 hours watching tv, you pay
less for your government services AND you pay less per hour.

Personally, I'd prefer if we all paid for the government we used, rather than
dumping the costs off on people who are more productive or lucky.

We really do not have the right to other people's property, not matter how
much they make.

If we want something we haven't earned, we should try an ancient non-violent
method of obtaining something. Its called "asking".

------
wisty
I'd be interested to see what income minus tax looks like.

It looks like there would be "income traps", where earning a higher base
salary would actually leave you less well off. Good to see the USA rewarding
hard workers!

~~~
_delirium
There are only income traps if the marginal rate's >100% at any point, which
it isn't here. Since the marginal rate's never above 44%, it means there's
never a case when earning an extra $1 won't gain you at least an extra $0.56
in your pocket.

~~~
emmett
The numbers cited in the post (as he points out) do not take into account all
the antipoverty programs we have. When you take those into account you get a
graph like this:

[http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABD...](http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABDg/dBO8WC5e4wU/s1600-h/implicit+tax+rates+2.png)

There actually _is_ a dead zone. Which is horrible.

~~~
_delirium
Part of the difference is also that he's looking at single people, while your
linked graph is for a family of three, and there are much more generous
grants/transfers for families.

There has been some effort to get rid of dead zones by changing thresholds
into phase-out zones, but not everything's been changed, and some programs
probably need more gradual phase-outs, especially if you consider their impact
when taken together. There's an issue though that gradual phase-outs are hard
to structure in a way that's politically popular: most people seem to have a
mental phase-out that's fairly steep, so it's popular to give food stamps to a
family of 4 making, say, $18k, but unpopular to give food stamps to a family
of 4 making, say, $30k. But if you phase them out from 100% to 0% within a
$12k range, you produce a significant implied tax over that range. Either the
phase-out has to start so low that genuinely poor people get <100%, or it has
to go up high enough that people who no longer really qualify as poor get some
low but non-zero amount.

------
joubert
_I probably made a whole bunch of mistakes here, never mind the major pieces I
omitted_

Harms credibility.

