Comment by bsvalley | Hacker News Reader

Comment by bsvalley | Hacker News Reader

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For the most part you'd live in a place like NYC or the Bay Area to come up with these kind of salaries. So let's assume you live in the Bay Area (California). New Federal income tax is 35% for that salary range then add 13% coming from beautiful and sunny California. We're at a 48 % tax rate. Let's round that up to 50% to simplify our maths. Congratulations - you are now making $150k/year! From 300 down to 150 just like that.

Housing in the Bay Area... rent is minimum $2500 for a 1 bedroom. If you want to buy that one bedroom instead, let's make it cheap and let's pretend it's only $800k for a 1 bedroom in San Francisco. You come up with 20% down ($160k) cash and get a mortgage for the remaining $640k. Assuming you've been eating potatoes for a few years to save $160k. We're looking at a monthly payment of about $3500 at today's rate. That's roughly $40k per year to live in a tiny 1 bdr. You are now down to $110k/year from $150k.

Property tax + home owner insurance + bills, etc. We're looking at %1 per year property tax so that's $8k then about $2k for home owner insurance we're now at $10k just to have the right to "own" a place. We're at $100k per year now without food, bills, etc. This is about $8300 net per month. You live in a 1bd apartment, you owe $600k to a bank, you work your butt off everyday and the only way for you to afford something bigger than bicycle is to either save money for a few months or to get a loan.

You're getting paid $300k/year you can't even buy a normal car. You have to get a loan. $8000 net per months is still a lot, but in today's life you ain't rich.

> Let's round that up to 50% to simplify our maths. Congratulations - you are now making $150k/year! From 300 down to 150 just like that.

That's not how it works. Anything above $200,000 will be taxed at 35%.

You're taxed in brackets. For the first $9525 you're taxed at 10%, from $9525 to $38,700 you're taxed at 12%, and on we go.

Your actual federal income tax at $300,000 is going to be more like $80,000. California state income tax is the same way, and the 13% doesn't appear to kick in until you're above a million [0], so that's more like $25,000, for a total of $106,000ish[1].

You "simplified" $44,000 away.

[0]: https://www.tax-brackets.org/californiataxtable

[1]: I'm really bad at my taxes, so take that number with a grain of salt, but it sure as hell isn't a flat $150,000.

While I agree on your main point, I think that you are confusing marginal tax rate with average tax rate. E.g. the 2017 federal income tax for a single making $300k is in the "$46.6k + 33% in excess of $191k" bracket. This means an average tax of 27.5%. Same for state income tax. So you aren't quite down to $150k/year.

That said, one _does_ face a marginal tax rate of over 50%. So any _additional_ income opportunity is basically cut in half.

On the other hand, an addition expense (but pre-tax) is retirement savings. People in their early-to-mid careers (especially those making $300k/yr) should not be planning for getting anything out of social security.

Certainly you should plan on getting Social Security. There is zero chance Social Security will go away, except in the fever dreams of Paul Ryan, who just retired.

The precise inflation adjusted return you’ll get on this social insurance scheme will be very low, and the retirement age may go up a bit, but unless we get effective immortality in your life time, the US can just pay for Social Security out of general funds.

> New Federal income tax is 35% for that salary range then add 13% coming from beautiful and sunny California. We're at a 48 % tax rate.

My Federal AGI was 260K, California AGI was roughly equivalent.

My Federal Total Tax was 65K

My California Total Tax was 22K

My total rate was therefore 33%.

Source: my 2017 1040 & 540

So, you've rounded up to exaggerate your point, failed to understand marginal tax rates, included costs of mortgage payments but not the associated tax deduction, and all those errors are in the same direction.

Why are you including state tax of 13% but not social security and medicare which is 7%? Also note that state tax is deductible so it feels more like 9%.

I think the math of going from $300k to $150k went by too quickly for me. Can you go over it in a little more detail?

> So let's assume you live in the Bay Area (California). New Federal income tax is 35% for that salary range then add 13% coming from beautiful and sunny California. We're at a 48 % tax rate. Let's round that up to 50% to simplify our maths.

What's unclear about that? 35% + 13% = 48% = about 50%. After that, it's just a matter of removing 50% from 300k to arrive at 150k.

35% is the marginal tax rate. The actual tax on 300k is 27%.

Tax (federal + state) in California is close to 50%

300k gross income at 50% income tax is $150k net.

That's not how tax brackets work. You only pay the higher rate on the income over the bracket. For instance, (assuming you're filing single) you pay 10% tax on the first $9,525 of income. You pay 12% on the next $21,175, and so on.

Here are the tax brackets for this year:

  $0.00+ 	10%
  $9,525.00+ 	12%
  $38,700.00+ 	22%
  $82,500.00+ 	24%
  $157,500.00+ 	32%
  $200,000.00+ 	35%
  $500,000.00+ 	37%

Only 1/3 of your income would be subject to a 35% tax rate. Less than half of it would would be hit by a 32% rate. The majority of your income would be taxed at 24% or less.

People not understanding progressive taxation on a thread about making 300k+ is a bit funny.

I wonder how many libertarian ideologies get forged simply because they don't understand progressive tax rates.

If you already believe taxation is theft, why would you bother with the specifics?

IME, lots of people start out with revulsion to the specifics (often based on popular misunderstandings of those specifics) and only later adopt a “taxation is theft” ideology to rationalize that revulsion.

So, I understand GPs question.

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