# Maximum US tax on income?
**URL:** https://boards.straightdope.com/t/maximum-us-tax-on-income/810429
**Category:** Factual Questions
**Created:** [March 12, 2018, 1:36pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429 "2018-03-12T13:36:19Z")
**Posts on this page:** 20
**Page:** 2
### Author:  [@Manlob](https://boards.straightdope.com/u/Manlob)
#### Post date: [March 14, 2018, 12:06am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/21 "2018-03-14T00:06:50Z")
> [@Bill\_Door](#):
>
> Sure it is. Making the tax rate that high requires playing a lot of games with the sources of income. **Manlob** says that the theoretical taxpayer “works a little at his small business”, making just enough to pay the maximum social security tax; and not so much as to have the tax rate decrease because of the cap. He also has a sufficiently large ordinary income from investments to be paying the maximum 39.6% federal tax, which requires a taxable income in excess of $418,401 for a single person, yet has no qualified dividend income or capital gains which are taxed at a maximum of 20%. It’s a purely hypothetical case; related to a spherical cow in a vacuum.
That is incorrect. This is not some highly contrived example. If we are looking for the maximum possible marginal rate, it is reasonable to look at very high income individuals.
The example I gave only requires his income from self employment be less than an amount that results in one of the taxes being capped (probably limited to around $100,000 by the state disability insurance). He could earn anything less than around $100,000 from working and still pay this high marginal rate if he has enough ordinary income from other sources. The example does not require he has no qualified dividend income or long term capital gains, only that he has enough ordinary income to get the tax rate up to 39.6%.
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### Author:  [@Grim\_Render](https://boards.straightdope.com/u/Grim_Render)
#### Post date: [March 20, 2018, 1:41pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/22 "2018-03-20T13:41:37Z")
Thank you.
I originally asked this question because as a Norwegian frequenting various message boards I often come across the idea that income tax in Norway is very high. This does not agree with my own experience, that for most people income taxes do not differ that much between the two countries.
This brings us to this:
> [@smithsb](#):
>
> Please, please, please read up on Marginal Tax Rates. No one is paying 39%, 40%, 37% on their entire income.
>
> […]
>
> It may sound silly but some of my educated friends seem to believe they are paying the single highest rate that applies to their gross income. (sigh)
The argument that Norwegians are taxed much higher is often supported by people listing the total top marginal tax in Norway believing (or at least arguing ) that it applies from the first buck earned. So it seems this may be a general misconception about taxes.
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### Author:  [@puddleglum](https://boards.straightdope.com/u/puddleglum)
#### Post date: [March 20, 2018, 2:55pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/23 "2018-03-20T14:55:22Z")
> [@Grim\_Render](#):
>
> Thank you.
>
> I originally asked this question because as a Norwegian frequenting various message boards I often come across the idea that income tax in Norway is very high. This does not agree with my own experience, that for most people income taxes do not differ that much between the two countries.
>
> This brings us to this:
>
> The argument that Norwegians are taxed much higher is often supported by people listing the total top marginal tax in Norway believing (or at least arguing ) that it applies from the first buck earned. So it seems this may be a general misconception about taxes.
Generally the biggest difference in taxes between Europe and the US is no longer that Europe has top rates that are that much higher than the US but that Europe has a VAT which the US does not have. US states have sales tax but that only applies at the point of sale and even the highest rates are less than 10% which is much less than Norway’s 25%. Because of this the total tax burden in the US is much lower, about half the size of Norway’s as a percentage of GDP.
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### Author:  [@Grim\_Render](https://boards.straightdope.com/u/Grim_Render)
#### Post date: [March 20, 2018, 3:16pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/24 "2018-03-20T15:16:09Z")
> [@puddleglum](#):
>
> Generally the biggest difference in taxes between Europe and the US is no longer that Europe has top rates that are that much higher than the US but that Europe has a VAT which the US does not have. US states have sales tax but that only applies at the point of sale and even the highest rates are less than 10% which is much less than Norway’s 25%. Because of this the total tax burden in the US is much lower, about half the size of Norway’s as a percentage of GDP.
I don’t think that is correct.
First off, percentage of GDP is not a good way to estimate tax burden on individual taxpayers. It is affected by how large a share businesses pay of the tax burden and by how great a slice of a population is a working taxpayer.
Second, 25 % VAT is the marginal tax issue again.
We don’t have 25 % VAT, 25 % is the top rate. Many things have 0% VAT, and some have half VAT or 15 %.
Third, when I get my payslip, taxes have been subtracted. VAT has not. And in many areas, if they have VAT I can avoid it by just going shopping abroad.
Fourth, for the purposes of a comparison with the US, many US states have a sales tax, so it’d be pretty variable.
That is why VAT is generally considered when doing a comparison of cost-of-living, not taxes. Which is where it belongs, in my opinion.
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### Author:  [@Leo\_Bloom](https://boards.straightdope.com/u/Leo_Bloom)
#### Post date: [March 20, 2018, 3:59pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/25 "2018-03-20T15:59:12Z")
[2012 US tax rate eg over 100%.](http://www.nytimes.com/interactive/2012/02/03/business/how-it-is-possible-to-pay-a-100-percent-tax-rate.html)
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### Author:  [@Chronos](https://boards.straightdope.com/u/Chronos)
#### Post date: [March 20, 2018, 4:05pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/26 "2018-03-20T16:05:14Z")
$12,473 out of $75,000 is 16.6%, not 102%.
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### Author:  [@Some\_Call\_Me.Tim](https://boards.straightdope.com/u/Some_Call_Me.Tim)
#### Post date: [March 21, 2018, 1:04am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/27 "2018-03-21T01:04:13Z")
> [@Manlob](#):
>
> … The example does not require he has no qualified dividend income or long term capital gains, only that he has enough ordinary income to get the tax rate up to 39.6%.
He’d then also have to carefully schedule his income such that his last dollar earned in that year was from ordinary income at that small business rather than one of those other sources.
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### Author:  [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)
#### Post date: [March 21, 2018, 2:15am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/28 "2018-03-21T02:15:30Z")
> [@Chronos](#):
>
> That said, if your income is much higher than the cutoff for the top bracket, then you’re going to be paying a total tax rate that’s very close to your marginal rate. Well, assuming that you’re not finding ways to shield most of your income, which you probably are if you’re making that much.
> [@mhendo](#):
>
> True enough.
>
> If you’re a baseball player on a 15- or 20-million-dollar salary, and if we exclude any possible shelters, then your total federal income tax is going to be as near as dammit to the maximum rate.
…and if you are in finance or have inherited wealth, a lot of your taxes will involve dividends or capital gains, which top out at 20% for income over $425,000 or $480,000. [Cite](https://www.fool.com/taxes/2017/12/22/your-guide-to-capital-gains-taxes-in-2018.aspx) (Er, but ACA adds another ~3.8% so it’s more like 23.8%)
This is highly relevant to the very rich. Does anybody see any sports heroes or actors in [this (worldwide) Forbes list of billionaires](https://www.forbes.com/billionaires/list/)? If so, what’s their ranking?
Ditto for their list of 400 richest in America: [Forbes 400 2023](https://www.forbes.com/forbes-400/list/)
Also recall the carried interest loophole. [What is carried interest, and how is it taxed? | Tax Policy Center](http://www.taxpolicycenter.org/briefing-book/what-carried-interest-and-how-should-it-be-taxed)
To be fair, your points were entirely topical to the OP, which has been answered by now.
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### Author:  [@Manlob](https://boards.straightdope.com/u/Manlob)
#### Post date: [March 21, 2018, 4:18am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/29 "2018-03-21T04:18:02Z")
In California there is not a different tax rate for qualified dividends or long term capital gains, and for a high income person they would be taxed at 13.3%, bringing total marginal tax rate on long term capital gains to 37.1%. There is also a sales tax that varies by city: 10.25% in Long Beach, 9.5% in Los Angeles, 8.5% in San Francisco. If a Californian buys something in Oregon, where there is no sales tax, and brings it back to use in California, there is a use tax added to the state income tax form equal to what the sales tax would have been if it was purchased at home.
For comparison to the high income self-employed person given above, a Californian not owning his own business who earns an annual adjusted gross income of $58,400 to $96,700 and rents an apartment (no mortgage deduction) would pay a marginal tax rate of 42.95% = 25% (federal) +9.3% (state) + 6.2% (Social Security) + 1.45% (Medicare) + 1% (state disability insurance).
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### Author:  [@puddleglum](https://boards.straightdope.com/u/puddleglum)
#### Post date: [March 21, 2018, 2:57pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/30 "2018-03-21T14:57:01Z")
> [@Grim\_Render](#):
>
> I don’t think that is correct.
>
> First off, percentage of GDP is not a good way to estimate tax burden on individual taxpayers. It is affected by how large a share businesses pay of the tax burden and by how great a slice of a population is a working taxpayer.
>
> Second, 25 % VAT is the marginal tax issue again.
> We don’t have 25 % VAT, 25 % is the top rate. Many things have 0% VAT, and some have half VAT or 15 %.
>
> Third, when I get my payslip, taxes have been subtracted. VAT has not. And in many areas, if they have VAT I can avoid it by just going shopping abroad.
>
> Fourth, for the purposes of a comparison with the US, many US states have a sales tax, so it’d be pretty variable.
>
> That is why VAT is generally considered when doing a comparison of cost-of-living, not taxes. Which is where it belongs, in my opinion.
Taxes as a percentage of GDP is the standard way of measuring tax burden. All taxes are paid by individuals, even business taxes whether they fall on the customer or owner. The VAT should be considered because it is the single biggest source of Norway’s taxes and because they taxes which is what is being discussed.
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### Author:  [@Orwell](https://boards.straightdope.com/u/Orwell)
#### Post date: [March 21, 2018, 3:15pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/31 "2018-03-21T15:15:43Z")
> [@puddleglum](#):
>
> Taxes as a percentage of GDP is the standard way of measuring tax burden. All taxes are paid by individuals, even business taxes whether they fall on the customer or owner. The VAT should be considered because it is the single biggest source of Norway’s taxes and because they taxes which is what is being discussed.
If you are trying to do a comparison, what about health insurance and health care. Isn’t that included in the tax burden in Norway? Should you include all of the money spent on health insurance and much of the money spent on health care in the US as a defacto tax?
What about local income taxes? In addition to federal and state taxes, workers pay local taxes to their counties, cities, townships, etc.
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### Author:  [@Grim\_Render](https://boards.straightdope.com/u/Grim_Render)
#### Post date: [March 21, 2018, 4:02pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/32 "2018-03-21T16:02:18Z")
> [@puddleglum](#):
>
> Taxes as a percentage of GDP is the standard way of measuring tax burden. All taxes are paid by individuals, even business taxes whether they fall on the customer or owner. The VAT should be considered because it is the single biggest source of Norway’s taxes and because they taxes which is what is being discussed.
I don’t think so.
When comparing the tax burden on individuals taxes as a percentage of GDP are pretty pointless. You could have a two nations with the same tax-as-percentage-of-GDP, one of which is very religious and have early marriage and one-breadwinner families. Another which is mostly two-income couples and singles. The tax burden on the individual citizens of the first nation could be near double that of the second, because it is borne by half the number of backs.
Also, I don’t really see that “all taxes are paid by individuals” is correct either. When Exxon Mobil drills for oil in the North Sea, and sell the oil, they pay 76 % tax on the profits. How is that tax borne by the citizens of Norway?
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### Author:  [@Grim\_Render](https://boards.straightdope.com/u/Grim_Render)
#### Post date: [March 21, 2018, 4:14pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/33 "2018-03-21T16:14:27Z")
> [@Orwell](#):
>
> If you are trying to do a comparison, what about health insurance and health care. Isn’t that included in the tax burden in Norway? Should you include all of the money spent on health insurance and much of the money spent on health care in the US as a defacto tax?
>
> What about local income taxes? In addition to federal and state taxes, workers pay local taxes to their counties, cities, townships, etc.
Not to mention college. Although there are sin taxes on things like alcohol and tobacco. You’d need to go deep in the individuals consumption. That is why the PPP adjustment exists.
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### Author:  [@puddleglum](https://boards.straightdope.com/u/puddleglum)
#### Post date: [March 21, 2018, 5:35pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/34 "2018-03-21T17:35:45Z")
> [@Orwell](#):
>
> If you are trying to do a comparison, what about health insurance and health care. Isn’t that included in the tax burden in Norway? Should you include all of the money spent on health insurance and much of the money spent on health care in the US as a defacto tax?
>
> What about local income taxes? In addition to federal and state taxes, workers pay local taxes to their counties, cities, townships, etc.
No, taxes have a specific meaning and health insurance premiums are not taxes under any reasonable definition.
Very few localities have income taxes, they almost all have property or sales taxes. These are included in the total taxes as percentage of GDP and are about 21% of total taxes.
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### Author:  [@Orwell](https://boards.straightdope.com/u/Orwell)
#### Post date: [March 21, 2018, 5:40pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/35 "2018-03-21T17:40:10Z")
> [@puddleglum](#):
>
> No, taxes have a specific meaning and health insurance premiums are not taxes under any reasonable definition.
In the US, sure. But is health care in Norway paid from tax revenue? I’m simply pointing out that various factors make it hard to compare locations.
> [@](#):
>
> Very few localities have income taxes, they almost all have property or sales taxes. These are included in the total taxes as percentage of GDP and are about 21% of total taxes.
Very few? I pay income taxes every year to my township, county, state and federal governments. We also have local property taxes. That is true throughout Pennsylvania. I doubt we are the only state with local income taxes.
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### Author:  [@puddleglum](https://boards.straightdope.com/u/puddleglum)
#### Post date: [March 21, 2018, 5:47pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/36 "2018-03-21T17:47:50Z")
> [@Grim\_Render](#):
>
> I don’t think so.
>
> When comparing the tax burden on individuals taxes as a percentage of GDP are pretty pointless. You could have a two nations with the same tax-as-percentage-of-GDP, one of which is very religious and have early marriage and one-breadwinner families. Another which is mostly two-income couples and singles. The tax burden on the individual citizens of the first nation could be near double that of the second, because it is borne by half the number of backs.
>
> Also, I don’t really see that “all taxes are paid by individuals” is correct either. When Exxon Mobil drills for oil in the North Sea, and sell the oil, they pay 76 % tax on the profits. How is that tax borne by the citizens of Norway?
Your math is off. The percentage and amounts per capita would be different but the percentage of GDP would be the same in either scenario.
The taxes paid by Exxon Mobil are paid by its customers and by the shareholders which are both people though mostly not Norwegian. If you deduct the 25% of taxes the oil industry pays in Norway the percentage is still 41% of GDP which is much higher than the US at 26%.
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### Author:  [@Grim\_Render](https://boards.straightdope.com/u/Grim_Render)
#### Post date: [March 23, 2018, 8:58am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/37 "2018-03-23T08:58:55Z")
> [@puddleglum](#):
>
> Your math is off. The percentage and amounts per capita would be different but the percentage of GDP would be the same in either scenario.
> The taxes paid by Exxon Mobil are paid by its customers and by the shareholders which are both people though mostly not Norwegian. If you deduct the 25% of taxes the oil industry pays in Norway the percentage is still 41% of GDP which is much higher than the US at 26%.
But that is not relevant to the tax burden on the individual taxpayer. What matters to Joe Average is the tax burden on Joe Average, not Exxon Mobil. In fact, if Exxon Mobil pays more tax, that mean Joe Average pays less tax.
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### Author:  [@bob\_2](https://boards.straightdope.com/u/bob_2)
#### Post date: [March 23, 2018, 10:10am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/38 "2018-03-23T10:10:57Z")
Actually, what’s important to Joe or Josephine Average is their disposable income. Trying to compare tax rates between countries is very difficult because there are so many variations in direct and indirect taxes. As a percentage of income, poor people tend to pay a larget proportion of their income in tax than rich people. This is because poor people spend nearly all of their income on day-to-day expenses while rich people can use accountants to help them avoid as much tax as they can and pay the maximum into pensions.
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### Author:  [@Grim\_Render](https://boards.straightdope.com/u/Grim_Render)
#### Post date: [March 23, 2018, 10:22am UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/39 "2018-03-23T10:22:35Z")
> [@bob\_2](#):
>
> Actually, what’s important to Joe or Josephine Average is their disposable income. Trying to compare tax rates between countries is very difficult because there are so many variations in direct and indirect taxes. As a percentage of income, poor people tend to pay a larget proportion of their income in tax than rich people. This is because poor people spend nearly all of their income on day-to-day expenses while rich people can use accountants to help them avoid as much tax as they can and pay the maximum into pensions.
While that is true, I started out wanting to compare the tax burden on Joe and Josephine Average to the tax burden on Ola and Kari Nordmann.
To compare disposable income is a different, and I think more difficult proposition. There are PPP adjustments, but they tend to be based on “basket of goods” comparisons, and generally work best between nations where you have to buy roughly the same goods. I.e. in the US, healthcare, college, etc are things you must purchase.
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### Author:  [@puddleglum](https://boards.straightdope.com/u/puddleglum)
#### Post date: [March 23, 2018, 4:48pm UTC](https://boards.straightdope.com/t/maximum-us-tax-on-income/810429/40 "2018-03-23T16:48:10Z")
> [@Grim\_Render](#):
>
> While that is true, I started out wanting to compare the tax burden on Joe and Josephine Average to the tax burden on Ola and Kari Nordmann.
>
> To compare disposable income is a different, and I think more difficult proposition. There are PPP adjustments, but they tend to be based on “basket of goods” comparisons, and generally work best between nations where you have to buy roughly the same goods. I.e. in the US, healthcare, college, etc are things you must purchase.
This is a much different question than the OP. The median household income in the US is $53,719. The average income tax rate for someone making that is [3.8%](https://taxfoundation.org/how-much-do-people-pay-taxes/). Social Security is 12.4% and Medicare is 2.9%, the [state](https://taxfoundation.org/state-and-local-sales-tax-rates-in-2017/)with the median local and state tax burden is Nebraska with 6.89%, the [median](https://www.usatoday.com/story/money/personalfinance/2017/04/16/comparing-average-property-taxes-all-50-states-and-dc/100314754/)state for property tax is Virginia with .99%. If you add all that up the result is 26.98%.
I can’t follow Norwegian [tax laws](https://www.lifeinnorway.net/norwegian-tax-beginners/) but it looks like median income tax is 25%, social security adds up to 8.2%, [VAT revenues](https://www.statsbudsjettet.no/Upload/Statsbudsjett_2015/dokumenter/pdf/chapter2_tax2015_eng.pdf) as a percentage of total consumption is 13%. The total of that is 46.2%.
46.2 is 71% higher than 26.9.
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