It's expensive being well off. If you make $250k a year, you take home $159k in SF. A big chunk of that goes to cost of living such that the $20k means one of your two kids can't go to the college they want because it's $50k per year, and you don't qualify for financial aid.
And others that aren't, that's the point. That kid can't go to his college of choice because it's expensive, not that he can't go to any college at all.
8% of income is significant for almost everyone. It could be easy for someone living on a lot less to assume that a marginal 20k doesn't matter to "rich people", but lifestyle inflation and regional cost of living differences should be considered.
The marginal rate in California for high earners is well over 50%. That 8% you're referring to is just the state income tax portion applied to the entire income.
Marginal rate for high earners includes: 37% federal. 13.3% state, plus FICA, social security, local taxes, etc. not to mention employer payroll tax and insurance premiums that are essentially passed on to employees but baked into tax in Europe).
Taxes are significantly higher in California than Europe for high earners (like the people leaving SF). There seems to be a major misconception about this even among Americans. Take France for example. Uses a simliar marginal rate system but caps out at 48%. https://taxsummaries.pwc.com/france/individual/taxes-on-pers...
"high earners" - this thread starts with someone asking why people earning $250k would care about $20k in taxes and the person you are replying to is talking about tax/income in Europe, not marginal tax rate
- 37% federal requires $510k income (after $12k personal exemption and probably $20k retirement savings)
- 13.3% state in California requires $1M income
- Social security is included in FICA and does not count towards the marginal rate for high earners (you pay no social security tax on income above $137k)
The rate is exceptionally high for earners making a fraction of that. Responses in caps.
- 37% federal requires $510k income (after $12k personal exemption and probably $20k retirement savings). YES BUT ITS 35% ABOVE $207k
- 13.3% state in California requires $1M income. YES BUT IT'S 9.3% ABOVE $57k, and 10.3% ABOVE $295k
- Social security is included in FICA and does not count towards the marginal rate for high earners (you pay no social security tax on income above $137k). THERE IS NO CAP ON THE EMPLOYEE PORTION MEDICARE TAX. PLUS NOT ALL OF THEM ARE IN FICA. THERE ARE BOTH FEDERAL (IN FICA) AND STATE INSURANCE TAXES IN CALIFORNIA FOR EXAMPLE.
- Local taxes? SF HAS A PAYROLL TAX OF 1.5% FOR EXAMPLE.
The 36% US rate doesn't include Payroll Tax, Social Security, or healthcare (premiums paid by both employer and employee, additional out of pocket by employee). The 48% France rate doesn't include Employer Social Security Contribution - which is significant but includes a pension etc. In essence a person making 211k Euro is getting paid a lot more than someone making $250k USD because of that pension alone (i.e. its more like someone making ~$280k USD, which would be a US combined rate of more like 40%, before payroll tax, etc etc)
401k is not tax free, it's tax deferred. You still pay tax, just when you cash out.
"Payroll Tax" isn't a tax, it's a mechanism for paying taxes by witholding tax from a paycheck. Which payroll taxes are you referring to when you claim that the CA effective tax rate for someone making 250k USD is higher than the equivalent in France?
Personally, by far my largest tax is income tax (which is far lower in CA than France for my level of income). Everything else is basically meaningless in comparison.
"Healthcare" also isn't a particularly strong case for the scenario you're proposing. If you're making $250k, you've probably got pretty good employer sponsored health insurance. Personally I pay nothing for a fairly good plan with low deductibles and copays. Health insurance in the US sucks for the unemployed and for low-income workers, but it's not at all bad for high earners.
401k taxation is also much more nuanced than you're making it out to be: it's taxed on withdrawal, at the rate you're withdrawing it. If you're retired — which is when you'd withdraw — your other income is probably zero, so your 401k is taxed in a very low bracket since it's your only income, and you're only withdrawing as much as you need to spend — as opposed to income earlier in life, where you're trying to make much more than you spend in order to build up savings. So while it's not exactly tax-free, it's extremely low tax generally. Presumably any other money you're relying on at that point you'd structure as long-term capital gains, which are also taxed at a low rate.
SF tax is paid by the employer. If we want to compare total employer costs for a given net salary, most of Europe is going to look much more expensive than California (see sibling comment).
Don't forget property tax that you're paying directly if you own or indirectly if you rent. If you rent, your property tax is likely a third of your rent in SF, to put it in perspective.
The average home price in The Bay is $1.3M. Because of prop 13, most owners aren't paying tax on that much, but most renters are paying pretty close (most units are relatively new stock). This comes out to $23,400 a year in taxes per house/condo. SF median salary is $96k.
Obviously the average person making $96k ($67k after income taxes) isn't paying $23k in property tax, but I think it helps give an idea at how big of an expense this is to most renters...
The difference is that in US you also pay federal income tax and then additionally state income tax if one exists. The authors point was just that the its lucrative to move to another state, and save on the state taxes.
The other difference is that as individual you almost get nothing for your taxes. Childcare, college education, health care, pensions, everything is private and something you or your employer has to pay.
In Europe paying taxes feels better since in many countries you actually lot of this stuff for free in an exchange from the taxes you pay.
tldr: my point is that people at high income levels still care about marginal income differences, not the morality of the tax.
"asked to contribute back to the society" is a generalization. how much should people be asked to give back? Similarly, even if a rate was fair, isn't it understandable that someone might prefer to pay less in taxes? We aren't talking about tax evasion, rather considering regional differences in taxation as part of the cost benefit analysis of moving. I imagine many in california share your beliefs and feel they are giving back a fair share of their labor. but it feels you are advocating for avoiding the conversation, or perhaps too quick to dismiss them as selfish, which seems to be less productive than understanding why others behave differently.
It would actually mean around 12.5% higher after-tax income. And after considering minimum fixed expenses, such as housing or food, these state tax savings become even more significant.
that's a very good point. in this case, the actual situation being considered is going from a squo of ~230k to 250k if the tax didn't exist/subject was no longer required to pay the tax.
As a college student, sometimes I don't buy cheese, or I buy $3 gouda, or $6 gouda. arguably any money spent on cheese is an extravagence, one that could wait for my career. But, I spend money on things that are enjoyable, and I spend more when I have more. "lifestyle inflation" isn't something that everyone richer than you does in order to buy more yachts or useless shit, it's something that literally everyone does. There are people poorer than you who "waste" their money on things they enjoy. perhaps they should also pay higher taxes because some third party has decided that their spending is frivolous? Tax rates should consider the well being of the citizens in that bracket, and a serious consideration of well being will require good faith- not condemning discretionary spending as unnecessary.
Don’t really see what the purpose of the money is. You could be spending 75% on hookers and blow and it doesn’t change things.
The point is that your basic needs are well being exceeded at even like 80k, at which point you’re already in the top 5-10%. It’s obnoxious and greedy to be concerned about such low amounts of money when you’re making $250k, in the top 1% and have so many more opportunities than other people.
