Differing Income Tax Systems

So, with all the talk about tax systems, I figure it would be interesting if we were to compare tax systems in different places.

I'll start.

You pay a combination of Federal and Provincial income tax rates. Almost all income is pooled into "taxable income". You have tax deductions (reduces the amount of your income to be taxed, thus lowering your amount at the marginal tax rate), and you have tax credits (reduces the amount of tax dollars you pay by the lowest income tax rate).

Most investments are just normal income, the only ones that are not are dividends and capital gains.

Capital gains is multiplied by 50% and then added onto your income.

Dividend income gets you tax credits.

Federal Tax Rate

• 15% for $0 to $41,544
• 22% for $41,544 to $83,088
• 26% for $83,088 to $128,800
• 29% for $128,800 or more

Provincial Tax Rate

• 5.05% for $0 to $37,774
• 9.15% for $37,776 to $75,550
• 11.16% for $75,550 or more

There's also payroll taxes for CPP (Pension plan) and EI (unemployment insurance).

So as an example, a person earning 60k, can expect to pay between 12-15k in income taxes. That's roughly between 19% to 23%.

Your main source of tax deduction is basic exemption (first 10k not taxed) and retirement savings (up to 18% of your income can be put into it, every dollar put in is a dollar of tax deduction).

Charity is a tax credit, not a deduction, thus for poor people, a dollar donated is a dollar worth of income tax credited (to be more clear, a dollar donated would reduce your payable tax by about 13 cents, which is worth a dollar of income taxed at the lowest rate). For rich people it's not worth it because their marginal tax rate far exceeds that.

EDIT: Oh right, that is the system for Ontario, Canada.

edited 17th Oct '11 4:14:08 PM by breadloaf

...I'm not really sure what we're supposed to discuss, and the density of economics is probably above my level here.

Let's see... principally, I'd prefer a consumption tax over an income tax, but there are varying problems with the former which make the latter the more practical option. How to conduct the income tax is... not my realm of study.

I am now known as Flyboy.

Provincial tax, do you mean state and local taxes?

Now using Trivialis handle.

^ Well, it's Canada so we have provinces instead of states.

Yes, the USA is one of the only countries to call it's... "component regions" states, most places use "province" or some other term, and reserve "state" for a synonym with "country". This stems from the USA's origins as a loose confederacy for a few years.

Fight smart, not fair.

With all the talk here about who pays what, I'm quite sure that if an American earned 60k normal income, the average tax rate wouldn't be that different (ie. less than the cost of healthcare insurance, or worse).

United State income tax and state income tax. Some states don't even have an income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming... with New Hampshire and Tennessee as well but they're special cases). Brackets for federal:

• $0- $10,000
• $10,000- $20,000
• $20,000- $60,000
• $60,000- $100,000
• $100,000- $250,000
• $250,000- $Infinity (see brackets that don't exist anymore)
  • $250,000- $500,000
  • $500,000- $1,000,000
  • $1,000,000- $Infinity

edited 18th Oct '11 11:34:46 AM by secretist

TU NE CEDE MALIS CLASS OF 1971

Washington has higher property tax to make up for it. Similar measures probably apply in those other states.

[1] This facsimile operated in part by synAC.

^^ You forgot to write the percentages :P

• $0- $20,000 10%
• $20,000- $100,000 15%
• $100,000- $250,000 25%
• $250,000- $Infinity 33%

edited 18th Oct '11 11:35:57 AM by secretist

TU NE CEDE MALIS CLASS OF 1971

For French eyes, that's quite low.

"And as long as a sack of shit is not a good thing to be, chivalry will never die."

I blame the evil Mc Guinty the TAX MAN for this high provincial tax.

What about HST and/or GST?

edited 18th Oct '11 1:23:27 PM by Erock

If you don't like a single Frank Ocean song, you have no soul.

Well the sales tax here is HST, which is 13%.

Europe tends to have both higher taxes and higher sales tax.

But I suppose a good total calculation should include some easy-to-calculate big ticket items that the tax system provides.

So for instance, a person earning 60k in Ontario pays around 19-22%, which as Erock noted, Mc Guinty THE TAX MAN, has set is one of the lowest in Canada if not the lowest. I also think corporate income tax is the least in Canada.

Does someone have some sample calculations for a typical American in several different states? To me, the important ones are Washington (no state income tax), California and then maybe like Florida and Texas. Then slap on full basic medical coverage (with zero co-pay).

History Top Rates Tax History 1861-Present Hauser's law More info on Hauser's law.

You can browse through the tax rates and more.

edited 18th Oct '11 1:37:34 PM by secretist

TU NE CEDE MALIS CLASS OF 1971

@ Medinoc

As I understand it France has

• No tuition fees
• Best healthcare in the world (do you guys have homecare coverage, pharmacare, eye care?)

Also what is the usual VAT in France?

Value added tax.

All Vat countries have:

• Standard 3-27%
• Reduced 0-18%
• Zero 0%

France:

• Standard 19.6%
• Reduced 2.1% or 5.5%
• Zero 0%

TU NE CEDE MALIS CLASS OF 1971

According to the article in The Other Wiki, French VAT is 19.6%, which is about average for the EU (UK: 20%, Germany: 19%, Belgium: 21%, Sweden: 25%*

, Finland: 23% etc...).

Keep Rolling On

We also used to have a "luxury" VAT bracket or 33.3% back when I was in CM 1 (fourth grade), but it was dropped and I never bothered researching why.

edited 19th Oct '11 12:29:34 AM by Medinoc

"And as long as a sack of shit is not a good thing to be, chivalry will never die."

I think generally, I prefer all income being considered just normal income and tacking on a few deductions/credits for certain types of income (like if it comes from a government pension). It makes for a simplified tax code.

To me, the real bar on tax code is this:

If I could be in charge of the tax system, I would eliminate all tax filing for both corporations and individuals. Instead, the normal tax forms are still sent in as information (like employers sending in the T-4 forms, banks sending their T-1 forms etc) except straight to the government electronically. A computer files the information and then processes it, then you get mailed your T forms and you bill (or rebate) and the computer automatically deducts as much as possible and grabs as many tax credits as possible. All information is maintained for up to 10 years, so that subsequent years if the computer can reorganise your income to get more deductions it does so.

Anything in the tax code that is contradictory or cannot be proven (like, in Canada, the Federal tax rules allows tax credits for use of public transportation but no way to prove you actually did it so basically, everybody would get it which is pointless) will be automatically eliminated.

Individuals with top gun accountants, or large corporations with giant teams of accountants to magic away tax burden will no longer have an advantage with loopholes. All businesses, in the same category, will have the same tax burden, instead of right now, where the larger you are, the better your accountants and thus the greater your deductions (the point where you are GE and get 3.2 billion from the government instead of paying any tax on 10s of billions of dollars of profit). If taxation drops off too much, then we start reducing the number of loopholes and deductions that can be used.

In America we have the Alternative Minimum Tax. The Alternative Minimum Tax (AMT) is an income tax imposed by the United States federal government on individuals, corporations, estates, and trusts. AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (exemption). This exemption is substantially higher than the exemption from regular income tax. Regular taxable income is adjusted for certain items computed differently for AMT, such as depreciation and medical expenses. No deduction is allowed for state income taxes or miscellaneous itemized deductions in computing AMT income. Taxpayers with incomes above the exemption whose regular Federal income tax is below the amount of AMT must pay the higher AMT amount.

A predecessor Minimum Tax, enacted in 1969, imposed an additional tax on certain tax benefits for certain taxpayers. The present AMT was enacted in 1982 and limits tax benefits from a variety of deductions. The thresholds at which AMT begins to apply are not automatically adjusted for inflation, as are regular tax thresholds, but Congress has made frequent legislative adjustments.

TU NE CEDE MALIS CLASS OF 1971

UK Income Tax: Basic Rate 20% - £0-£35,000
Higher Rate 40% - £35,001-£150,000
Additional Rate 50% - £150,000+

However you do not pay tax upon £7,475 of your income, this is called the personal allowance. (Unless you earn over £100,000 where it is reduced by £1 for every £2 you are over.)

Council Tax, which pays for local government stuff depends on the value of your house.

National Insurance (where you pay for the welfare system, so it pays for Jobseeker's allowance, your state pension etc):

• If you earn more than £139 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £139 and £817
• If you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817

So for example if your monthly wage was £30,000 this is the breakdown:

• The amount you would be taxed upon is £22,525. (This is because you wouldn't be taxed on the £7,475.)
• You'd be paying the 20% rate income tax which would be: £4,505
• You'd pay your National Insurance which would be: £2,732.64
• The total deductions would be £7,237.64
• So your net wage for the year would be £22,762.36
• You'd still have to pay council tax but I it depends on the area (Not really too high in my experience, although obviously if you have a swanky house you'll pay more, but then you are likely to have a higher paying job.)

edited 19th Oct '11 2:14:57 PM by IanExMachina

By the powers invested in me by tabloid-reading imbeciles, I pronounce you guilty of paedophilia!

So the total income + payroll taxes comes in around 24%, just slightly higher than the Canadian 60k income. The 30k british pounds used to be more than 60k CAD in exchange rate but not anymore, however British domestic salaries hardly adjust based on that, so I take it that 30k salary is a typical "okay" salary over there?

Ian, are you sure those figures are right?

I thought the limit for 20% was £37400 >.>

Then there is saving income tax rate of 10%/(20% if they have non-savings income too)40%/50%

Dividend tax income is 10/32.5%/42.5%

Dutch Lesbian

Here's Her Maj's Revenue and Customs' response.

Also, somebody on wikipedia did this lovely chart that shows your take home against your nominal payment. It includes National Insurance. There's another one that expresses it in terms of percentage of your pay.

It is also worth pointing out that the personal allowance is set to rise each year until it reaches £10,000. We had a 10% tax band for a while and the 50% band is only a couple of years old.

Hey, y'know what, just use wikipedia for the UK, it's a pretty good article.

Is £30,000 OK? Well, it's the statistical mean.[1] But it's well above median.[2][3] [4].

My sources aren't great but these are always changing statistics and it's hard to keep track of where and when I got particular figures. However I think the best gauge of human expectation is when you have tv adverts that try to wow you and get your interest in courses, promising a salary of £30,000+. If you want to be comfortable, I suggest aiming for over £50,000.

edited 20th Oct '11 5:50:56 AM by SomeSortOfTroper

Over 50k pounds for comfortable? That sounds pretty bad. At 50k for single income, no kids, would be comfortable here. For a family, a family income of about 80k would be comfortable, or maybe 95-100k.

edited 20th Oct '11 9:00:47 AM by breadloaf