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Comment by koyote | Hacker News Reader

> Western European salary is taxed for around 40%

You'll only get that tax rate at very high salaries and it's also of course marginal. In the UK the first 12k (~$17k) is entirely tax free for example. After that it's 20% up until you have earned 50k (~$70k). Only after that does the 40% tax kick in. So on a $75k salary, only $5k will be taxed at 40%.

For a $75k salary you would be paying just over 16% tax and 9% national insurance (i.e. pension) in the UK.

When I first started working as a SWE in the UK I worked out that my average tax rate was actually slightly lower than if I earned the same in California. If I was earning 2-3x more then the higher European taxes start to kick in.

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Careful with the "of course marginal" and lumping all of Europe into one bucket :)

E.g. Germany has a progressive tax rate system and the salary ranges this applies to are rather small. Quoting from: https://taxsummaries.pwc.com/germany/individual/taxes-on-per...

For a single taxpayer:

Free amount: 9744 EUR Progressive tax from 14-42%: 9744-57918 EUR 42% on your entire salary from: 57918-274612 EUR 45%: > 274612 EUR

Also see a nice explanation and graph here, though the numbers they use are different, because different tax years are assumed: https://en.wikipedia.org/wiki/Taxation_in_Germany#Income_tax

I think you're misunderstanding his post. "Marginal" doesn't mean "small", it means "at the margins/edge". He's saying the same thing you're saying, that's how a progressive tax rate works: there are multiple tax brackets, each of them is taxed at an ever increasing tax rate, but always lower than 100% (so the more you make, gross, the more you get, net, too).

In your example, even in Germany, the total tax rate for someone making more than €274 612 is not 45%. It's lower because the lower brackets get taxed less. Realistically, it seems like the actual tax rate for someone making over €274 612 would be somewhere around 36-38%.

And anyone making that much in Germany will live like a king, anyway.

I understand very well thank you. I have lived in both tax systems ;)

Germany does not in fact have tax brackets but instead has the aforementioned progressive tax. I think there's a problem of translation in the as well as the bracketing system used in many if not most countries are also technically progressive taxes. But progressive is the literal translation of how the taxation system is called in German ;)

As the OP mentioned the 40% marginal tax rate only applies to the income above the threshold for that bracket. He is absolutely right about that and that's how I'm taxed where I live now.

In contrast the German tax is applied to your entire income after the basic free amount and it is applied. To quote Wikipedia:

> The German income tax is a progressive tax, which means that the average tax rate (i.e., the ratio of tax and taxable income) increases monotonically with increasing taxable income.

The bracketing is only done above where it reaches 42%.

To quote https://www.icalculator.info/germany/income-tax-klasses/2020...

>... use geometrically progressive rates which start at 14% and rise to 42%. This means that those rates are calculated as a linear evoving ratio rather than a straight percentage as typical in most other countries around the globe.

There are artifacts. Your marginal tax rate in the UK is 62% between $140K and $170K.

    £100K ($142K) take home => £66,689.16 ($94K)
    £120K ($170K) take home => £74,289.16 ($105K)

    (£74,289.16 - £66,689.16) / £20,000 = 38% for keeps

If you hit that you normally salary sacrifice pension to drop you out of that.

Also the UK has very generous matching for pensions

Matching varies by employer and isn't a legal requirement. The legal minimum employer contribution is just 3% if you put in 5% and it's arguable whether 8% is enough for a comfortable retirement.

For most 40% tax bracket earners (earning less than £100K) once you get beyond your employers match, there's not much benefit to a workplace pension. A £100K earner sacrificing 10% in to a workplace pension scheme is only £200/year better off than someone taking home that 10% and paying it in to a self-managed scheme (provided they reclaim the tax).

Things change dramatically over £100K. Someone earning £120K and sacrificing £20K in to an employer scheme ends up £4400/yr better off than with a self-managed scheme.

You know I meant the HMRC match and the tax treatment - not the statutory employer one.

You get tax relief at your rate of income tax, which is much better for higher rate tax payers

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