The thing (in many European countries) is that government doesn't 'steal' your money, but that out of every salary you have to pay for many different things. Income tax is only one aspect.
For those interested, this is the reality in my country, Slovenia, which borders Hungary (I may have botched some numbers regarding taxation, but the principle behind calculations stands):
1. Out of every monthly salary you pay: income tax, state/public pension fund, health insurance and also a small tax (<1%) called parental security.
2. A woman or a man may take up to 12 months of parental leave, which is fully paid by the state. The government uses money from 'parental security' tax to pay for this privilege. It works, because at any given moment there are many,many more employees not on parental leave than those on parental leave.
3. A woman is entitled to sick leave during pregnancy if her doctor makes such decision. So it may well be that she is absent for two years from her job. And it is also true that many women abused this privilege simply by convincing their doctors that they 'cannot perform on the job while pregnant'. A few years ago there's was a sort of clampdown to this practice by tightening the control on the doctors' decisions. So it's not that pervasive anymore.
4. A woman is also entitled to reduced workday (only 4 hours instead of 8) while her child is under 6. Her salary is of course halved, but state covers her pension fund as if she worked 8 hours. Many women don't decide to use this option, simply because a halved salary puts a lot of strain to majority of families' incomes.
5. Regarding firing workers: similarly to Hungary it's very difficult to fire someone and almost impossible to fire pregnant women or old people. Therefore, majority of people under 35 don't have regular contracts, but they work via independent contracts or the so-called self-employment companies (you establish a company in which you are a sole employee and then go work to another company which pays you via your small company). Needless to say, job security is practically non-existant if you aren't on regular contract.
6. Progressive income tax is also here, however it's not as brutal as in Hungary. Lower salaries (<1k euros) are actually not taxed that much. The problem is only that the highest tax bracket (41%) comes already at 2k euros and that hits middle class the most. We, skilled professionals, are usually complaining the most about this fact. There are discussions to change this taxation in order to stem the brain-drain. It's also important to know that progressive taxation is applied on 'past-the-post' principle: e.g. you are taxed 41% only for your income that goes over a certain amount. This means that if your salary is 2k euros, you'll be taxed 41% only on income past 1.5k euros, that is 500 euros will be taxed 41%, 1.5k euros 27%.
7. Grey economy/tax evasion is certainly a problem, however the tax bureau is becoming more and more powerful and it's connected with banks. It's actually not that easy to cheat anymore. That goes for majority of people/businesses, richest top 5% still game the system by moving the money to Cyprus/Luxemburg shell companies and so on, but this can't really be helped unless it's solved on EU level.
Ok, I'll stop now :-). If you have any further questions, then do ask.
That's still far lower taxes than I pay in the USA. SS, Medicare, State, Federal really adds up.
Federal 25%(over 34k), Medicare 15.3% (below ~120k cutoff), Medicare 2.9%, Virginia 5.75% (over 17k /year). Now many people get tax breaks for various things but 50% income tax rate is fairly common for the upper middle class without much in the way of a safety net or public heath care.
It's not quite that straightforward, is it? State taxes are federally deductible. And virtually everyone in the upper middle class owns a home and takes a whopping deduction on mortgage interest, and property taxes are also deductible.
I'd also push back on "not much in the way of a safety net". I'd like universal single-payer health care, but in the meantime it's worth remembering (a) once you hit retirement age, you very much do get public health care, and (b) retirement age is when you're most likely to incur medical expenses.
If he's in Virginia (I was there 9 years), it takes a significant income to have a home. My old one bedroom condo at 835 sqft was 240k in 2005. A single family home in a reasonable neighborhood starts at $300k pretty easily which is easily 2-3x prices here in Austin.
The problem is that salaries in DC aren't double Austin.. they're more like 1.3-1.5x.
Also, once you're about the 50k threshold for income, some of those deductions - like for student loans - start decreasing and disappear.
You might just as productively debate the whole concept of the progressive income tax scheme, because the mortgage interest tax deduction is probably the most popular deduction in the code.
Although I don't in fact like the progressive income tax scheme, I don't see why it isn't possible to critique this aspect of it while supporting the concept at large.
I generally don't agree with your premise, that it's unfair to advantage homeowners in the tax code. I think society as a whole benefits from increases in home ownership (homeowners are stakeholders in neighborhoods). I think the tax code can either be simple or effective.
You are free to disagree at length with both of those beliefs and I won't fault you for doing so, except that if the best argument you can muster is "no fair, I just want to rent" I may roll my eyes.
But the thing I really wanted to point out is, there are 104905480 things we can debate on HN where a change of perspective might be productive. This isn't one of them; the mortgage interest tax deduction is a psychological pillar of the middle class of the US and eliminating it would be painfully disruptive to huge numbers of voters.
Narcotics will be decriminalized nationwide before we lose deductible mortgage interest, is my prediction. People have strong feelings about drugs, too, but the decision to legalize them or not doesn't change whether they can still afford the cable bill.
"You are free to disagree at length with both of those beliefs and I won't fault you for doing so, except that if the best argument you can muster is "no fair, I just want to rent" I may roll my eyes."
This is fundamentally an issue of the tax code, once again, favoring those who are well off while disadvantaging those who are not.
The mortgage interest deduction is subsiding those who make the choice to reduce their labor mobility; why would we subsidize people who want to reduce their competitiveness in the labor force?
Hopefully the mortgage interest deduction will go the way of ethanol subsidies.
The equivalent UK benefit (MIRAS[1]) was abolished by the Conservative party, which out of the two main parties would be the right wing party of home ownership. It can happen ...
High levels of home ownership causes long term economic harm by preventing people from moving around in response to better job offers etc. More importantly the mortgage tax credit simply increases home prices vs. making them more affordable. The reality is it's wildly understood as a bad idea economically, but it's so popular it's simply being chipped away by capping it and not indexing the cap to inflation.
These numbers don't add up for me. I make just over six figures a year and my effective tax rate at the end of every year is roughly 20% (according to TurboTax). Single, no kids, no house.
As tptacek pointed out you are ignoring that the state tax is federally deductible and that the income tax rate at the 25% bracket is the marginal rate.
The key to taxes in the United States is that they are broken up into a large number of categories. 20% sounds about right for "Federal Income Tax", but that's only counting the largest tax of 4 or 5 taxes levied directly on salary.
At that income level (around 100k/yr), the tax federal taxes reported to you on your last pay stub of the year should be around 28%, when you count FICA (6.2%) and Medicare (1.45%). Add to that whatever your state income tax is (most states have an income tax). As an example, I have to pay 4.63% to the state of Colorado. I think most states that impose an income tax are within a few percent of that. Then add the hidden employer side of payroll tax (another 6.2%), and you end up with a figure that is close to 40% of income.
Minimum standard deduction and a single personal exemption will remove a few percent from this figure at filing time, and you can delay tax payment through 401(k) contribution, but it is still a very heavy tax rate. It is just well hidden from the average income earner by putting the taxes into a number of buckets.
I'm a little uncomfortable talking in specifics here, but I'm not close to 50% effective tax. IL's state income tax is 2 points lower than VA's (or was until recently) but that's 2 points.
20% sounds low to me too (makes me wonder whether he missed FICA), but add all them together and you're still not giving half your money away.
That 41% that I've mentioned is just income tax on my brutto salary. Pension fund is ~15%, health insurance 8.5%. In addition to my taxes on brutto salary, the employer is levied additional taxes for my health care and my pension (so called employer's mandatory participation). In total, the cost for the employers quickly adds up, so (for example) 3000EUR brutto will give me 1700EUR netto and the total cost for employer will actually be 3483EUR.
Just want to point out that if 8.5% is getting you single-payer health insurance without deductibles, it's still a better deal than the prevailing rates for low- (not no-) deductible private market health insurance in the US.
My experience so far in Hungary - and I expect Slovenia to be pretty similar is that you can't really compare the benefits between state provided medical in Central/Eastern Europe to what can get through private insurance in the U.S.
I never knew someone in the US that had to get cash to the doctor on the side or bring their own toilet paper and food to the hospital.
I'm not exactly sure what grandparent is implying. Health care in Slovenia is actually pretty nice (you most certainly don't need to bring your own food or anything else in the hospital) and covers most of the situations you might encounter in your life, with one ugly exception: queues for some non-life-threatening operations and/or examinations. Most notorious being orthopedic surgery. It turns out that what isn't life threatening today, might become very dangerous for your health in the timespan of several months, before it's your turn to be operated on. So many people who get stuck in queues pay additionally from their pockets to get the necessary examinations/operations as soon as possible in privately owned medical establishments. Another funny thing stemming from this fact is that many doctors/surgeons work in public hospitals four days a week and then privately a day a week or some similar arrangement.
That's not what I'm talking about. I'm saying you can't just compare costs straight across by looking at taxes vs. premiums because in the health care system here there are a number of hidden costs.
I had a friend who broke his arm. The emergency room doctor wouldn't touch him until the family provided some cash.
If you have to provide extra bedding, food and toiletries for a hospital stay on your own - those costs aren't reflected in the taxes that one pays for health care.
This has nothing to do with debating the merits about either system, I'm purely talking about trying to accurately compare the costs.
I'm asking seriously: how much cash? Couple hundred bucks?
The system you describe is obviously corrupt, and I sympathize with the frustration, but I might prefer a system where I had to spiff doctors a couple bills to get an arm set over a system where I could be both insured and bankrupted by minor surgery that happened to snag a loophole in my policy. That's the private market insurance system we have in the US.
I'm not sure what he payed and that was a while ago. Most Americans that I know in Hungary, when they need something done they go to Austria.
I lived in the US most of my life. The health care system there is pretty messed up - in my opinion. But when I moved to Hungary I realized I'd been quite naive about how things are here.
I assumed it was a rather cut and dry fact that health care would be better here - and it isn't as simple as I had assumed.
... and don't forget the other things we don't include in our taxes here, but that are covered by your taxes in many other (especially European) countries: health care, retirement, disability insurance.
Australia will tax residents for offshore assets. Most countries don't. Of course, it's easier to cheat (as the banks overseas may not co-operate), but that might change with more international co-operation.
I remember reading a story about a wealthy Australian that went to court regarding his offshore assets. The assets were under a trust that locked him out of making any decisions, automatically triggered when he became a defendant in such a court case.
For those interested, this is the reality in my country, Slovenia, which borders Hungary (I may have botched some numbers regarding taxation, but the principle behind calculations stands):
1. Out of every monthly salary you pay: income tax, state/public pension fund, health insurance and also a small tax (<1%) called parental security.
2. A woman or a man may take up to 12 months of parental leave, which is fully paid by the state. The government uses money from 'parental security' tax to pay for this privilege. It works, because at any given moment there are many,many more employees not on parental leave than those on parental leave.
3. A woman is entitled to sick leave during pregnancy if her doctor makes such decision. So it may well be that she is absent for two years from her job. And it is also true that many women abused this privilege simply by convincing their doctors that they 'cannot perform on the job while pregnant'. A few years ago there's was a sort of clampdown to this practice by tightening the control on the doctors' decisions. So it's not that pervasive anymore.
4. A woman is also entitled to reduced workday (only 4 hours instead of 8) while her child is under 6. Her salary is of course halved, but state covers her pension fund as if she worked 8 hours. Many women don't decide to use this option, simply because a halved salary puts a lot of strain to majority of families' incomes.
5. Regarding firing workers: similarly to Hungary it's very difficult to fire someone and almost impossible to fire pregnant women or old people. Therefore, majority of people under 35 don't have regular contracts, but they work via independent contracts or the so-called self-employment companies (you establish a company in which you are a sole employee and then go work to another company which pays you via your small company). Needless to say, job security is practically non-existant if you aren't on regular contract.
6. Progressive income tax is also here, however it's not as brutal as in Hungary. Lower salaries (<1k euros) are actually not taxed that much. The problem is only that the highest tax bracket (41%) comes already at 2k euros and that hits middle class the most. We, skilled professionals, are usually complaining the most about this fact. There are discussions to change this taxation in order to stem the brain-drain. It's also important to know that progressive taxation is applied on 'past-the-post' principle: e.g. you are taxed 41% only for your income that goes over a certain amount. This means that if your salary is 2k euros, you'll be taxed 41% only on income past 1.5k euros, that is 500 euros will be taxed 41%, 1.5k euros 27%.
7. Grey economy/tax evasion is certainly a problem, however the tax bureau is becoming more and more powerful and it's connected with banks. It's actually not that easy to cheat anymore. That goes for majority of people/businesses, richest top 5% still game the system by moving the money to Cyprus/Luxemburg shell companies and so on, but this can't really be helped unless it's solved on EU level.
Ok, I'll stop now :-). If you have any further questions, then do ask.