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Comment by Cookingboy | Hacker News Reader

I always thought it's silly for the Congress and WH to be focusing on raising the tax for the high income people (doctors, lawyers, senior engineers, people who are well off but still live off paychecks), whom are already paying a very high effective tax rate. Meanwhile the ultra-rich are mostly untouched by these new laws and people like Romney can still get away with a 13% effective tax rate.

The only significant portion of the new law that MAY make an impact on the uber-riches is raising long-term capital gain to 20% for people who make over $400k (so actually now even better reason for CEOs to take $1 salary and get the rest in stocks) and limit deductibles to $250k per family (So hopefully people like Romney can longer claim the expenses on their horses and everything else as deductibles).

Well, like MA said, the aspiring rich people took a bullet for the real rich people.

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One of the reasons Romney has 13% effective tax rate is that he gives a lot to charity - about 13% of his AGI on average, if you believe the auditors: http://content.usatoday.com/communities/onpolitics/post/2012...

So when using Romney as an example, it is good to know that if he did not give this much to charity, the rate would be somewhere around 27%, maybe more if charity deductions avoided triggering some higher rates, etc. Average effective income tax rate (don't confuse with marginal!) for millionaires is 23%, for "middle class" is 20% and below (the figures is for tax year 2010, other years I imagine they may differ).

I find it weird that you can reduce charity contributions from taxation. Isn't it like grant for the rich to "choose where they pay their taxes"? And have nice dinners...

Correct me if I'm wrong, but I believe charity contributions can only reduce your taxable income. For simplicity, let's say you have an income of $1M and a tax rate of 35%. Normally you'd pay $350k in taxes. If you donate $100k to charity, then you pay 35% * $900k = $315k in taxes, for a total payout of $415k.

The real picture is a bit more complicated than that due to variable tax rates, but I don't think there's a case where donating to charity doesn't increase your total payout, since you give up 100% of what you donate instead of whatever tax rate you'd have paid.

Side question: are there really senior engineers who make >$400k in salary? I thought you had to go into upper management to break much above $200k in actual salary (paycheck, not equity), even in the Bay Area. But I could well be out of touch with recent developments in Valley pay.

Restricted stock units are treated as income, so while not technically "in salary", tax implications are the same.

What prostoalex said, while it's still rare, but for senior engineers who work for companies that give out a lot of valuable RSUs such as Google/Apple, etc, it's very possible for them to make more than that amount.

A lot of people at Google are north of $500k, I've heard. We're talking engineering and product, not management.

I mean, what would you pay someone like Ken Thompson? There are the outliers like him, of course, but I've also heard that even the less-known folks do well.

Though I've heard all of that from Xooglers, it remains anecdotal. I also remain slightly old-school when dealing with other peoples' salary and give them respect; I'll freely tell you what I make (if permitted legally), but I understand people are not as open as I am and I try to respect their privacy.

Anecdotes are perfectly valid evidence for "there exists", albeit checked for all the usual biases of any testimonial evidence.

The problem here is the distinction between discrimination (there exists X) and calibration (X is close to true figure Y +/- Z, where Z is inflation from anecdotal inflation bias).

Government taxes things (cigarettes, gasoline, high incomes) to discourage them.

And as a result, people decide that being rich isn't worth it and become welfare queens instead.

Tragic, really.

The "Welfare Queen" exists largely in the imagination of the right. Even in areas of the US with relatively generous public assistance, the difference in standard of living for someone who relies solely on welfare versus someone with even a moderate income (much less "rich") is so large, no rational person would choose to live on welfare just to avoid the taxation that resulted from having a high income.

I certainly don't agree with tax policies designed to punish or discourage high incomes, but this is pure hyperbole.

There certainly do exist people that face a negative return to marginal work, due to the phase out of public assistance with income.

I'm not really sure what "welfare queen" means, but there are plenty of people that face strong incentives to stay on public assistance and little help to get off of it. I wouldn't necessarily place all the blame on them, though.

There certainly do exist people that face a negative return to marginal work, due to the phase out of public assistance with income.

This is largely because either their state-government is incredibly stingy (see: Texas) or because their potential wages are incredibly low.

I suspect the grandparent comment is pure sarcasm.

If that is the case, I apologize and feel a bit sheepish.

In my defense, I live an incredibly conservative area in the US, and many of my neighbors honestly believe this exact thing, so it isn't obvious sarcasm to me.

I really thought that saying something so obviously false would be easy to detect as sarcasm/satire.

> this is pure hyperbole.

I'm pretty sure it was satirical.

As a sibling pointed out, someone didn't get the joke. :)

The whole marginal thing must be really confusing. The problem is not that rich people would stop generating income - they won't. The problem is that marginal rates modify behavior, including changing how income is generated, where it is generated, etc. And the rich are exactly the people that have ample tools and opportunities to do that. If you earn nearly-minimal wage in some shop, you don't have many other options. If your taxes are raised, there's not much you can do other than spit and curse. If you're an investor, you have wide array of options where to invest, how to invest, etc. I know it sucks that it is always sunny in the rich man's world, but it's a reality. If whoever designs tax policy ignores it, he'd be unpleasantly surprised when projected tax income falls short of the target, and would have to slash the benefits programs or get deeper in debt.

They still pursue wealth, just not through the income venue.

Government taxes things to raise income.

Both statements are true. Taxing as a method of altering spending patterns is very well understood by economists. In the case of cigarettes, it seem sot have been quite effective since smoking rates in the Us have fallen to historic lows.

I'd suggest that education campaigns and the natural human desire to not get lung cancer may have also played a part.

Surely, though it's worth noting that education campaigns and research are financed with both tax dollars and cigarette company settlement money (from a large lawsuit many years back).

There is no tax rate < 100% that discourages a higher income.

There is. Living in California, marginal rates for a well-paid engineer can be 50% and more. Given that you give up half of the money, one's incentive to look for a side gigs and other supplemental income is significantly reduced. Of course, nobody turned down a raise saying "oh, taxes are high so I don't need it", but if additional income involves substantial marginal effort and risk, given high marginal tax it's just not worth it.

Yep. And if your investment portfolio generates reasonable before-tax return (it should, if you've been working for the past 5+ years and saving diligently), then you get to the marginal rate even quicker.

Not to mention increase in paperwork once you go beyond simple salary...

How do you figure? If I have the choice of increasing my labor by 20% (by some arbitrary metric, like labor hours per week) to increase my post-tax income by 20%, I might decide that is worth it and go for the higher income. If, on the other hand, I am currently at the top end of my current tax bracket, and the next highest bracket means that my 20% increase in labor will only increase my post-tax income by 10%, I might decide that isn't worth it and thus not go for the higher income.

But, with the higher tax rate, someone else might decide it's worth it to increase their labor by 40% so as to increase their post-tax income by 20%, whereas they only would have increased their labor by 20% without the tax effect. So, it really isn't clear that higher taxes lead to lower amounts of labor.

Except that someone will be hitting the external limitations (only 24 hours in a day, human body needs non-billable hours for sleep and food) pretty quickly. Also, this is true as long as there are no opportunity cost alternatives (spending time with family, pursuing hobby).

In a nutshell, "High top marginal personal income tax rates are found to impede long-run productivity". Source on this is OECD, but original PDF link no longer works http://www.cato.org/blog/oecd-admits-high-personal-corporate...

This assumes a linear correlation between labour spent and gross income earned.

The tax brackets are known to everyone, including those who pay the salaries - if you want to get someone to do that 20% extra work, and they'll want a 20% increase in net pay, then you can just do the math and pay the appropriate gross.

For some people there is. It's a marginal effect. Every time you alter the tax rate, some fraction of earners will change their behaviour.

Have you heard of the "dead weight loss" of taxation? It's a concept in economics.

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