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Comment by prewett | Hacker News Reader

The most interesting point of the article to me is that fact that taxes above $100k were 70% - 90% until 1970. That seems like it nicely explains why income inequality and CEO salaries have increase since 1970. With a tax rate like that, you pretty much can't have much income inequality.

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The tax code simultaneously strongly encouraged you to not consume goods/services but rather have a company consume them on your behalf. This is still pretty de rigeur in Japan, which results in situations like this regarding executive perks: Bob lives in an extremely desirable house, which he rents for hundreds of dollars per month. It is owned by the real estate arm of BigCo, where Bob is CEO. Bob doesn't own a car; BigCo has issued him a $250k company car. Bob's children attend private schools, receiving a scholarship from BigCo for emerging leaders like themselves. Bob is in reasonably good health, given his frequent use of a gym and country club (dues billed to BigCo), and his wife's cancer situation is entirely managed by their gold-plated health insurance policy. Bob is socially assured of a sinecure post-retirement like e.g. being on the board of directors of a company socially close to BigCo.

Bob's salary is $90k a year. Phew; income inequality, solved.

(The current standard in the United States is that most of the above fringe benefits would result in taxable income to the employee. This is close to the current formal rule in Japan, which adopted guidance very similar to the US' on about a 25 year lag, but the substantial give-and-take between tax authorities and employers/taxpayers makes the actual practice in Japan substantially more varied than in the US, including among firms which would consider themselves enthusiastically complying with the rules.)

That's why replacing corporate income tax with personal income tax, which many here advocate, won't work. However that issue can be mitigated by taxing companies on the value of perks

In Sweden, both the individual and the corp is taxed the value of the perks.

And in Germany & the Netherlands as well

Corporate perks like that are taxed as personal income in the United States.

Yeah, but that in turn always screwed my US taxes when I lived/worked in Japan (as a native, not an Aoyama expat)

I'm not a tax expert by a long shot, but I believe that here in Germany perks from your company count as taxable income. Company cars definitely do.

What if you just "rent" them indefinitely?

Germany, like any other European country I know, charges 0% tax as long as a company doesn't pay it out to it's owners. Every other use (see next paragraph) is untaxed. In fact they pay less tax than individuals (no VAT). And of course, high incomes have such companies, that receive their salaries instead of them themselves. This is common and perfectly acceptable, in fact, as a consultant you are taken advantage of if you don't do that.

How does it work ? One pays "proper" tax on a nice income they pay themselves indirectly (but 1/3 or less of their real pay) and then invest it in something that's some form of capital replacement business (buy something - rent it out) and grow that business all their career, and of course use it for perks, like free dinners, vacations, health care, education, hotels, cleaning service, ... There's even the more blatant ways to get untaxed pay. For instance renting your own house (you put an office room in your mansion, then "rent" it to your own company for a very nice rent. Untaxed, and legal)

For tax purposes, of course, those aren't free dinners. Those are "sales negotiations", which are indeed also conducted in expensive restaurants. "Company conferences", not vacations. As for additional healthcare, that receives special tax treatment by default.

Company cars (aside from being a necessity. You're socially judged in Germany by the car you drive. You want "senior consultant" ? Don't arrive in a Renault, or generally any car under $50k. Hell I know people who hack this system by using rentals, removing the stickers and using those to go interview). Anyway company cars are untaxed (0%) as long as their "primary use" is company business. Wanna bet how often that is true for higher pay individuals ?

Oh and I've actually walked into the general management building of Deutsche Bank. I guarantee not one of the managers is paying a dime in tax on company perks, and yet ... that building is a palace. You can get free massages there. There's an exquisite restaurant (10 euro per meal). It's the best museum of German art in existence, by a HUGE margin, it's got sleeping rooms (which should be understood to be a free hotel service, because that's what they are), and of course, every business partner or "business partner" ... can be given access, again, for free. And all this service, for free, in the dead center of the city. Hell, the free parking alone is worth 500 euro per month.

Can we please stop with the idea that Europe is somehow a more egalitarian place than the US ? It's not. Also no European business will be caught dead paying half the salary you get in Colorado to a software engineer (you can get comparable to Colorado as a consultant with maximum "tax hacking" though, still nowhere near the valley). Lastly, at least in my experience, European companies are a lot less meritocratic than US ones (not that I'm seriously claiming there isn't a healthy dose of nepotism/favoritism in the US, but it doesn't tend to be 90%+ of the company, whereas that is very common in the EU).

Thanks for the perspective.

This wall of text is a bunch of personal anecdotes that don't support your conclusion.

Europe, generally, is more egalitarian. Most of the countries operate on social democracies. Many countries have free health care. I would also like to point out countries in the EU are different. They're not like states in the US, they're very different.

The US has people without access to water. Huge trailer parks. Much higher rates of homelessness. Worse income equality. Smaller social welfare programs.

Whatever your personal experience of walking into a bank is, it doesn't matter and it doesn't make you right.

It's also a bit silly to point at a bank, which are notorious in all countries.

The software salary thing is very odd thing to point at too, the US has a disproportionate amount of the internet companies which is heavily inflating your software salaries due to demand.

I've seen pretty sizeable trailer parks without fresh water in Holland, too. Granted, nothing comparable to what you find in America, but finding regions of endemic poverty in Europe is not hard at all.

Most of the examples you cite are tax evasion, not avoidance. If you use the company car privately you need to pay taxes on it. They may even require you to log your tours (Fahrtenbuch) if they don't believe you.

If you rent out the office in your house to your own company for a too high price they will investigate you for "verdeckte Gewinnausschüttung".

There are of course margins to play with in which you can probably hide a lot of money, but generally this is tax evasion

Huh. So when baby boomers were young they enjoyed all the cumulative public benefits of high taxes in prior years, but were never subject to such high taxes themselves? No wonder they look back at those times with admiration.

Taxes were even higher after WWII, gotta finance them somehow. Good thing the US isn't in a war today and doesn't have the need for high taxes to finance a bloated military. /s

The tax rate didn't drop until the 1980s so, no, that doesn't explain anything.

https://qz.com/74271/income-tax-rates-since-1913/

Taxes were high in theory, but there were also a ton of deductions, so your real tax rate was a matter of tax planning art.

The 1986 tax reform level most of that out.

However back then there were a lot more deductions for individuals tax returns until the 1986 reforms so I wonder what the effective tax rate was.

The only reason that 70% tax didn't destroy the economy was because for much of the time after WWII, the US was the only first-world country stable and not rebuilding from the war. It was also possible because the effective tax rate was way below 70%.

Hey us Aussies were running a stable first world country then too.

With a tax rate like that, you pretty much can't have much income inequality.

As we all know today from history, there was lifestyle inequality in the cases where there was supposedly income equality.

Unrealized capital gains were not taxed in that era, and are not taxed now.

(In the US; Europe has many places with wealth taxes.)

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