Comment by pants2 4 days ago
This doesn't seem quite right. Even using SmartAsset's income tax calculator for a city in California, I'm getting around a 45%+ tax rate for someone making one million a year of income.
It's actually pretty easy to pay an 80%+ tax rate in California if you consider taxes that your employer pays, sales tax (11%+ in some areas), local assessments, capital gains tax, etc.
>Taxes paid by your employer aren't taxes you pay.
They have the same effect in that they reduce what employees take home in a given labour market. Employees are effectively paying them in the same way that people who buy alcohol/cigarettes effectively pay more in states with higher taxes on those items (even though the taxes are technically paid by the stores).
If CA eliminated all income taxes and instead had employers remit the same effective rate for all salaried employees, employers would just reduce salaries accordingly.
As another example, France's income tax rates cap out around/below some high tax US states. But France is still a comparatively high tax jurisdiction largely because they also impose massive payroll taxes on employers which effectively reduce employee wages.
> >Taxes paid by your employer aren't taxes you pay.
> They have the same effect in that they reduce what employees take home in a given labour market.
Careful, you're thinking like a Marxist (assigning value based on costs ultimately culminating in labor). Under Capitalism, value is assigned based on the meeting point between what people are willing to pay, and what people are willing to sell it for. Some things, like Pokemon cards, are far more valuable than any costs incurred in their production. Other things, like Aunt Betty's utterly disastrous attempts at baked goods, are worth less than then they cost to produce. Payroll taxes only directly effect the purchaser's willingness to pay. Only if we believe that companies are currently paying 100% of the wages they would be willing to pay if they needed to can we call the payroll tax entirely a tax on the worker.
Taxes paid by your employer are indeed paid by you. If your salary is X and the company is paying Y worth of payroll tax, then they're really paying X+Y for your services, which would all be salary going to you if not for the payroll tax.
As I pointed out elsewhere, "X+Y... would all be salary going to you if not for the payroll tax" makes the assumption that companies are currently paying 100% of what they could possibly be willing to pay for that employee's labor. Given the profitability of California's companies, I suspect there's some surplus there. And a surplus suggests that the value of the labor is being driven moreso by what price will attract sufficient employees, which would only change due to 2nd or 3rd order effects by the elimination of payroll taxes (via competitors willing to pay more for a finite pool of top laborers popping up).
I believe it is a reasonable hypothesis that if payroll taxes were removed, 2nd order effect would be that employers have more money to offer for all positions, and in a market driven job market, prices would increase and thus salaries would converge to X+Y, yet they would be worth the same as X today.
Yes, likely not exactly the same (a bit more kept by employers in overcrowded job markets, a bit less in others), but it would essentially support the interpretation that most of that is really a tax that goes out of employee "budget", or their total comp.
In market dynamics, a worker becoming cheaper means that some employers will fight to hire/keep an employee on that surplus, thus driving the employment cost up for everybody else.
Yes, it probably would depend on positions and available talent, but overall and over a longer period, if applied universally to a market (say state like CA), it will be reasonable to expect salary increases (but not increase of how much is that worth because of increasing purchasing power, and increase in prices due to higher willingness to pay).
> which would all be salary going to you
That part is not necessarily (or even probably) true, if payroll tax didn't exist the company might not pay all of that to you unless they had to.
But that's a nitpick... overall, it is true that the fully burdened cost of having that employee is X+Y, so that's the number the company needs to consider when deciding whether they can afford to hire (or keep) this person or not.
The competitive market would take care of that. The employer that most wants your services will offer the X+Y, and competition will induce others to do the same. (No, the job market isn't perfectly liquid, but in principle that's what would happen.)
In cali capital gains are part of income.
Taxes paid by your employer aren't taxes you pay.
I'm quite sure your calculator is very basic and stops at 401ks and little more, there's stuff like mortgage interest, being married with kids, backdoor roth, etc.
But yeah, wouldn't change the number you said dramatically, maybe it would lower it to 45%ish on a 2M income.