Ask HN: Do you feel like you're paying too much taxes? | Hacker News Reader

Ask HN: Do you feel like you're paying too much taxes?

16 pointsmontbonnot43 comments

Sorry for the people who live outside of the US (even though it might be the same issue), but I'm looking at the republican candidates tax reforms... One candidate is talking about 15% for small businesses/corporates and the other talks about 16%. And something like 10% income tax for every employee. Meanwhile, democrats are talking about "no tax increase" or something like "millionaires should pay %30 instead of 0-%10". By the way, if I make a million dollars today as a business owner I have to give away about 50% of my income to the government here in California. How do millionaires pay only %10 taxes?? Billionaires maybe..

Anyway, I'll be honest with you, I am not a fan of republicans at all... but I came to the point where I have to listen to them a bit more carefully. Beyond all the conservative BS etc... tax is my main concern at the moment. I'm worried... It's what impacts my life everyday. I feel like half of the money I earn is taken away and given back to the government. W2's or business owner's it's the same problem. So my question is, what do you guys think about paying too much taxes? Do you care? Is this one of your main problems?

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I take no ethical issues with the concept of taxes and funding things that are in the common interest of the country.

What I do take issue with is the fact that I don't think my tax dollars are being used as effectively as they should be, not just because I don't feel like I get proportionate value from what they're supposedly funding, but more importantly I dont think anyone is.

I think by and large the world runs on incentives, and I don't think that the people whose job it is to allocate the resources obtained through taxes have the kind of skin in the game that's necessary to make decisions in the long term best interest of all parties involved. Anytime you have a scenario where a organization of people in society unbounded by naturally selective forces, waste and misallocation of resources will take place. It would make me feel a lot better if my taxes were going towards a system characterized by bottom up trial and errors rather than grand design, and unfortunately I think the latter best describes how our country appropriates tax dollars to our collective benefit.

As for your other question, I think there is something fundamentally fair about the concept of proportionality. I don't think its the job or role of taxation to act as punishment, because it's not as "fair" for someone making 50k a year to pay 20% in taxes to pay the same 20% as someone making 500k. I find great injustice in this idea, as I want to live in a society that seeks to empower people to become the best that they can, in a spiritual and economic sense. Not send the message that those who've achieved economic success somehow have engaged in a misdeed they have to pay or make up for.

"As for your other question, I think there is something fundamentally fair about the concept of proportionality."

Proportionality of what, is much of the question. Progressive taxation is often justified by pointing at the fact that money (like most things) has diminishing marginal utility. Taking $10k from someone making $50k is far more of a burden than taking $100k from someone making $500k.

I'd push the logic even further. How about taking away $100k from someone who's making $250k per year? If you reach $250k/y you're supposed to make a statement. Someone who studied hard (for example), got into student debt, etc. A doctor, a lawyer, an engineer, etc. You have to give away 2 times the salary of that person making $50K/y. I think it's not far. Progressive taxation should start way higher. If you make 1 million dollars a year you'll never become a millionaire because you'd have to give away %50 of it. You have to make 2 million dollars to earn one million dollars. I think it's unfair at any level. Unless you're a billionaire. Billionaires should get taxed %50. You still have half a billi left in your bank account to live your life like a king... you'll be fine trust me.

> $100k from someone who's making $250k

40% tax? Sounds about right. So long as there are good social services. That's about the taxation level in the Nordic countries, so with that I expect universal health care, 1 year combined parental leave per child, free college tuition to state colleges, state coverage of old age homes, free college, 30 days of holiday, good roads, clean water, etc.

> Someone who studied hard (for example), got into student debt, etc

If tuition is free, there's no need to go into massive student debt. Cuba, with the Latin American School of Medicine, pursues medical diplomacy by providing free medical education to international student, including US citizens. It cost Cuba about $15K/year/student or about $90K total. Some of the US citizens do this so they can return home and worked at a free clinic or volunteer in communities that are underserved by those who go into $100Ks of debt. (See http://www.pbs.org/newshour/rundown/cuba-offers-poor-med-stu... ).

Those medical students are making a statement as well - that $250k/y isn't what drives them to be a medical doctor. (I bring this up to highlight that a lot of people make statements, not just those with high incomes.)

> Billionaires should get taxed %50

Note that "billionaire" refers to wealth, not income. Are you proposing a global wealth tax of 50% of the richest people? Picketty's proposal is only 5 or 10% for billionaires.

FWIW, the highest income tax bracket in the US used to be ~90%.

> If you make 1 million dollars a year you'll never become a millionaire

If you make $1M/year with 50% income taxation and no wealth taxation then you have 500K. If your lifestyle costs $250K/year than you bank $250K/year. It will take 4 years to become a millionaire.

If there is a 50% income tax and 2% wealth tax on $1M/year income and no savings (and the same spend) then you'll have $250K in savings for the first year, $490K the second, $720K the third, $940K the fourth, and by the fifth year you'll have over a million in savings.

Regarding your last point, assuming you'd be an employee with a steady income of one million dollars per year. I believe you'd be a CEO in a large corporate or you'd have a very generous employer. Then yeah, you could chill and plan for the next 5 years. What if you're a small business with no regular income? You made a million dollars thanks to your hard work in 2015, which might not happen again in 2016. They took away %50 of that million dollars.

I agree, billionaire refers to wealth not income. At that level your income is the money you generate from your own money. Which is an income, which should be taxed at %50 if your wealth is in the billions of dollars. That's what I was referring to.

Oddly enough, I am a small business with no regular income. (Self-employed. Was an LLC in the US. Now an AB in Sweden.)

Regarding the "You made a million dollars thanks to your hard work" - first, that's misdirection. Don't make the mistake and think that working hard is all that was needed for $1M; many more people work much harder than I do, and make even less. $1 million also requires a non-trivial amount of good fortune. It means I did not get a heart attack, did not get into a car accident, didn't become depressed or burnt out from working too hard, etc. It means I guessed right about where the market was going, and how to reach customers.

Regarding the question of how to handle tax on $1M if I am uncertain about the following years.

First, I can live for 5 years on $100K/year, so 50% tax still leaves a huge amount. My business is little more than me and a few computers, plus conference and customer travel.

Second, quoting http://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29... :

> If you will regularly need to keep a substantial amount of profits in your LLC (called "retained earnings"), you might benefit from electing corporate taxation. Any LLC can choose to be treated like a corporation for tax purposes by filing IRS Form 8832, Entity Classification Election, and checking the corporate tax treatment box on the form.

Third, I would look into setting up a Delaware C Corp.

What's wrong with any of these three options?

I went over these options when I incorporated. Nevada, Delaware and Wyoming. Unfortunately, I'm the only member of my LLC and my office is my house. For a software company selling online it is not recommended to incorporate in a foreign state with these conditions. Usually more than 5 members and at least a physical office located in Delaware for instance. Otherwise the tax burden can become overwhelming and my tax liability may actually increase because I'd be viewed as a foreign entity operating in these states. It's easy on paper but when you start digging it's not that easy.

Filing as a C-Corp? :) I'd be taxed twice. The LLC would have to pay income tax on its earnings then I'd have to pay taxes during the distribution to all the members (myself). This will be viewed as income tax. Definitely not. Though, filing as an S-Corp would take away the annoying/abusive self-employed tax of %15. Problem, again, the IRS... they hate S-Corps and they will make sure I fail to comply. My problem with filling as an S-Corp is that the LLC wouldn't pay self employment tax but the member would have to. So if I make $1 million, I withdraw $1 million (which is the goal), I'd pay the full self employment tax anyway. Does it make sense?

Last but not least, regarding your 1st point it all depends on your goals. I'm not rich and I'm still alive. Obviously I already know I can survive with $100 k/y not a problem. Now, majority of the people are looking for security first, then comfort and finally, they want to become rich. I personally want to become rich first. Then I'll be looking for comfort then security last. I'm looking for freedom, that's my main goal. We have different goals so we can't argue with each other on that specific point unfortunately. I view taxes as an obstacle... some don't which is fine.

Are you seriously planning to make $1 million in one year, with the expectation that you would make no income for the following 5 years? That is a very uncommon scenario. I expect you may need to consult a CPA or someone else with specialized knowledge on how to do this most cost effectively.

You say "it's not that easy", but that's besides the point. If you think you can save 10% of $1M than that $100K can buy you a lot of CPA time to make the problem become easy.

"if I make $1 million, I withdraw $1 million (which is the goal),"

Ahh, you want the fantasy of not paying taxes at all. Why should the state limit your liability in exchange for nothing?

If you really have flood/drought income, then talk to a CPA about how to spread your personal tax liability across multiple years. You can't be the first with these problems. Eg, low income people have to deal with capital gains from selling a house.

In that vein, you said nothing about my second point, on retained earnings.

retaining earnings is a solution. And you're right I didn't mention it. Another solution is less taxes which sounds more reasonable to me. As I said at the beginning of this thread, Republicans seem to understand the problem and have a proper solution to it in order to avoid making other people richer trying to work around the legal system (e.g. CPA).

And as I said, "40% tax? Sounds about right. So long as there are good social services."

I think you need better tax advice.

An LLC only pays taxes if it has elected to be treated as a C corp by the IRS, otherwise income & losses pass through to the members.

An C or S corp only makes sense as a sole-proprietor if you have substantial other assets to protect, or expect to accept investments from non–individuals.

You need far better tax advice than you're getting, wherever you're getting it from.

If your goal is to pay absolutely no taxes, then that's not going to happen if you want to rely on the systems those taxes pay for in the US.

If your goal is to legitimately reduce taxes and spread income over multiple years, there's legal ways to do so which a proper tax advisor can guide you through.

We're saying the exact same thing. "Income passes through the members" = members pay income taxes = federal + states + self employment tax = +%50 if your income is $1 million. You can eventually avoid the self employment tax filing as an S-corp.

"that's not going to happen if you want to rely on the systems those taxes pay for in the US.". That's what I'm saying, there's no way around it besides the republicans tax reform.

"spread income over multiple years". That's what someone mentioned already.

Am I still not informed? Should I need better tax advise?

Yes, you need better tax advice.

Waiting for Republican "tax reform" is like watching Lucy hold the football for Charlie Brown. If you are holding off managing your business cash flow until this "tax reform" is set in motion…you are going to be waiting a very, very long time.

> You still have half a billi left in your bank account to live your life like a king... you'll be fine trust me.

I notice that people tend to be much more okay with unfairness as long as it doesn't affect them.

Consider that to 99% of the humans having $500k does mean "living like a king", and I bet that Joe who works at the gas station will think "you'll be fine with half a mil, trust me" when he thinks about taking half of your salary.

If you make $1M you are a rich person, if you make $100k you are a rich person, if you make $40k you are still in the top 0.57% of the richest people in the world (http://www.globalrichlist.com).

People who justify taxing people richer than they are seem to forget that there's 6.7 billion people thinking the same way and using the same logic to justify taking their stuff.

But whose job is that to decide? The arbiters of fairness and marginal utility?

The issue with fairness is that it's impossible to arrive at a definition of fairness without it inevitably just serving the interest of whomever defined it.

"But whose job is that to decide? The arbiters of fairness and marginal utility?"

There are a variety of answers to that question, of varying quality.

But take a step back. Do you realize you're responding with a statement that determining fairness is impossible... to an objection to your own attempt to assert something was fair?

Yeah I do, but I'm mostly meaning to point out the epistemological issues with conversations around fairness and to state that to me, proportionatity is the only thing that most resembles fairness

Some people may call it punishment, others call it progressive taxation: https://en.wikipedia.org/wiki/Progressive_tax

And others can call it whatever they like as long as they end their sense of entitlement in being able to lay a claim on my earnings.

I'm aware of the definition, instead of replying with semantics you could try to outline the specifics of your defense of it.

From how I see it, in no morally relativistic sense do I see how making more money means I should have to forfeit more of my income because that's what's decided to be right and just by people who make less money.

I think if someone claims they have a bigger claim on my money because I earn more, you must PROVE why that is.

Because you have more to lose when the revolution comes.

And more tools to prepare for/profit off it :)

Politically I vote Democratic at the Federal level and a mix between Democrats and Republicans at State/local level. That's shifted in recent years as the GOP has purged moderates out of the NY State party.

I think we should either pay enough taxes to cover our routine government expenses, or cut the expenses to meet the revenues from taxes.

Generally the GOP talks about cutting taxes and spending, but shifts the burden to debt and various user fees. Democrats get blamed for raising taxes, but generally raise taxes to meet existing obligations (as well as use taxes as punitive means to change social or business policy).

For 2014 my household had an AGI of approximately $900k, of which we paid around $250k in US Federal taxes, roughly $70k in NY State taxes, and another $32k in NYC taxes. So, roughly 42% tax rate when you combine all three (I'm ignoring sales taxes).

I don't think I pay too much in tax.

Would I like it to be less? Sure. But I like having roads that are paved, bridges that don't fall down, police and firemen who are paid a decent wage. None of these services are free. Many of these services (at least in NYC) started out as commercial services in the 1800s and shifted to being government produced and funded.

You know why? Because humans suck at forecasting their own needs. I don't have kids, but I pay for schools in my taxes. I don't plan to have a fire, or be the victim of a crime, yet I continue to subsidize the people who are victims of crimes, even (indirectly) the people who commit those crimes.

Americans seem to be uniquely blind to the benefits of the social system we’ve created over the past 230+ years. All we see are the system, its bugs and inefficiencies, the corruption, the costs. We fail to recognize the benefits.

The US economy is an extremely imperfect capitalist system, but until someone explains to me clearly, without waving hands, or relying on the Laffer curve, how to fund socially shared obligations without paying taxes, then I'll pay them and use other forms of influence to try to change how my taxes are used.

Because the alternative is to resort to building a castle and a moat, and hiring a bunch of flunkies to guard me and my moat and my money, and effectively create my own little government.

If you make $900k/y and you're fine losing $378000 then we need a flexible system. Where people like you you'd be working %42 of their time for free, while people like me would chose to earn each and every minute back. Time is more valuable than money. I'd be fine losing %42 of my annual salary working %42 less.

So, you don't need any public services at all?

I'm not losing money, I'm contracting out a variety of services I'd otherwise have to pay for.

I do. But a police officer gets taxed. A fireman gets taxed too (a lot in my opinion). What are they subscribed to? Themselves? How about using big corporate money to pay for that? Look at Apple they run most of their offices outside of the US to avoid being ripped-off by the US government. If they get a fair tax bracket then they'd bring their business back in the US. Then we could use that money instead of our own money.

Apple keeps a lot of its cash “overseas” because of 30+ years of tax policy changes to shift the tax burden from businesses to individuals.

As long as business can leverage “overseas” cash assets to issue debt in the US without paying taxes on the cash, they'll do so, only until the interest rate on the debt exceeds how much they'd have to pay in taxes to repatriate the cash.

Time is absolutely more valuable than money, which is why I focus on making as much as possible for a few hours a month.

If you want to accumulate wealth, focus less on how much money you pay in taxes, and more on how to make the money you earn work more for you. If you earn $1MM in app sales in one year, fantastic, great for you. Pay your taxes, and invest the remainder to build up a business that earns you $500k a year with minimal effort on your part.

Of that $900k AGI, only about $450k was wages, the rest is earnings from investments (which get taxed differently depending on how they're paid).

Thank you. It's refreshing to see someone walking the walk, not just talking the talk. Too many people get above 6 figures and decide that taxes are suddenly the worst thing in their life.

Do I think I pay too much tax? Yes and no. I'd like to pay more, but I have basics to take care of first.

I think that taxes should be reserved for those with some level of financial stability/independence. I don't know how to come up with a benchmark for that, though.

If I earned what I do now in a low cost of living environment, then I could pay 80% and still get by just fine.

Put simply, as a UK citizen, to a very good approximation, a worker earning 50K pa pays the same amount of tax whether they own a 5 bedroom home outright or whether they live in a tent. (Council tax / property tax exists but is generally small).

I don't think that's an efficient policy. It makes bootstrapping much more difficult than it should be.

I hate taxes, plain and simple. This is in part for the same reasons I hated cable TV (and cancelled it): I don't like paying a lot of money for things I don't want, need, or support. But then there's the issue of fairness. We live in Southern California and pay every form of tax there is. And does the IRS do a cost of living adjustment? Of course not. So my $73k here gets taxed at a higher level... Even though we pay a lot more for everything here. So I think I'd be less pissy about it if they'd adjust the tax owed by the local cost of living. But yeah, it does chafe that we spend trillions of dollars on the albatross we call our modern government.

"By the way, if I make a million dollars today as a business owner I have to give away about 50% of my income to the government here in California."

This is if you make a million dollars in salary or in profit. If you reinvest that money into the business, you aren't taxed to nearly the same extent, while still retaining the value. If you have a million bucks floating around, you're also in a position to invest your money outside the business and take advantage of capital gains rates: https://www.irs.gov/taxtopics/tc409.html

Obvious disclaimer: I am not a lawyer.

Sure.. what if you're an LLC making apps (single owner). How do you re-invest your million dollars into your business? Your business consists on a laptop and yourself. That's all you need to make apps and to sale them on the app store... You would most likely be working from home. So you have to file a regular income tax since you'd be a sole proprietorship. The business money is your income money because you have to "withdraw" that million dollars from your LLC to your personal bank account. If you leave it in your business it would be taxed anyway. So at the end it becomes regular income tax and you fall into the seventh bracket (federal: %39) + state tax + self employed tax (%15). It's more than %50... Sucks you made a million dollars and you have to give away half. That's why I don't get it when democrats think that millionaires avoid taxes. There's no way around for most of the small business owners.

Well then you didn't make a million dollars, you made 500k. Gross is an admittingly galling fiction but is for day to day purposes pretty much that, a fiction.

Transform these %50 taxes (money you're giving away for free) into time. You're now working %50 of the time for free while you could spend more time with your family, kids, friends, learning things, etc. It's not a fiction, it's reality.

No you're working 100% of the time for less money than the gross wages number on your check.

Yep, reality sounds like an nightmare. Thanks for re-clarifying :)

It does not really matter at this point which person you vote for. The giant Gov Credit Card has been used to buy a bunch of stuff. The taxes will not go down as the monthly payments have to be made to pay for all these purchases.

Yes it is a little crazy that most people pay an effective 50%+ tax rate and there is little to show in return.

Singapore is probably one of the better models for how taxes should be, but everyone likes to promote this myth that a country as large as the US could not do the same thing.

I say why not.

Care to elaborate on what makes Singapore's tax scheme so good? A quick glance looks like they have a progressive system like ours, just with lower rates.

EDIT: That sounded hella confrontational, and I don't mean that at all. I'm really interested if Singapore has found a better way to fund their government that we don't use for some reason.

Most of what I discovered came from this post that was on HN a while back https://gyrovague.com/2013/10/30/half-the-donut-why-an-entre...

Rich people as a class invest and save more as a percentage of income. what are you going to do with that dollar you saved on taxes anyway put it in the stock market, real estate, etc? it's just an illusion collectively all that does is raise prices on assets. So, as a whole the rich will still own the same stock, bond, real estate they just paid more for it. then someone comes along and raises taxes the all the sudden asset prices fall. but you still only own 1 share of xyz.

besides I'd be much more worried about the trade war they all want to start more than anything.

Next, would be all the federal workers they want to layoff to get those taxes cuts. lay off a couple million people and see what happens to the economy.

I think that the question about how efficiently gov uses tax money is an order of magnitude more important than the question of how much to pay in taxes.

Another related question is how efficient gov in allocating the help. I wish there is a separate gov body that quantifies the efficiency of all allocations.

Who knows, perhaps, when inefficiencies are removed, taxes we pay now is enough to build a just society with big middle class. I personally consider Wall Street's bailouts and international military interventions are among the biggest gov inefficiencies.

It is absolutely insane that anyone, person or corporation alike, should pay taxes in the modern era. The government should just be honest and do in the open what they do by obfuscation anyhow: Print the money. It's the only way to avoid pervasive corruption.

I think this is simplifying it a little too much and not considering the cons of the inflation that comes with this system. It's an interesting thought though.

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