The highest band of income tax in Germany is 45% and obviously that's only on any amount over the threshold - so even if you make that much money your effective tax rate will be closer to 30% than 50%.
So unless I'm missing something - I don't see how Germans could be paying 50% tax on their earnings?
> Well, correct me if I'm wrong - but according to this random website I found in 5 seconds of googling:
I will, because you are! Unfortunately, it's really easy because the German government applies a simple slight of hand. They call it a "gross employer contribution", which increases this band of income tax beyond the 45% you pay after the GEC. [1]
It works like this: As your employer is paying your wage, amount X, they pay half of your contribution to social insurance companies. This so called "employer contribution" is subtracted before you are paid out your gross wage, amount Y, which you see on your pay slip. Now, on amount Y, you pay the other half of social insurance fees and taxes. Then you get your net, amount Z. Most sources you will find online will only talk about Y and what is subtracted to get to Z. But your employer pays your full wage for what your work is worth, and they of course are not as nice to gift your one half of social insurance payments to you.
I mean sure, but does that actually add up to over 50% of your income? Here in the UK it works exactly the same as you described, but the NI is 10% of your income - even if you are in the highest band for incomne tax(also 45%) you wouldn't get to 50% overall, maybe if you make millions a year that average would start getting close to 50% (and if you do, congrats!)
And can I comment on the fact that Germany seems to be incredibly generous with their bands - the 45% band only kicks in at 280k euro, so like maybe 0.00001% of all workers are in that band? Here in the UK you start paying 45% from £125k and up.
Anyway - the reason why I'm asking is because UK taxes and social obligations seem to be crazy high as it is, but even they won't get you to 50% total, not unless you literally make millions in income per year.
I don't know about Germany, but in France for 100k gross salary, the employer social contributions will be around 40k, the employee social contributions another 20.5k, then 15.5k income tax.
In the end 140k that employer pays result in less than 64k take-home salary. The real tax rate is around 54%. So, I can't verify what OP says about Germany but I can easily believe it.
Right, but I've never met anyone who looks at it this way - this part:
"the employer social contributions will be around 40k"
Is not your salary. This is what the employer has to pay to keep you. So even in your example your tax on your earnings is around 35%. The fact that the employer has to pay another 40k to keep you employed is......well, shocking, but I wouldn't say that's a tax rate on your earnings - for the simple reason that if the government reduced the employer contribution to zero it wouldn't change anything about your take home salary(unless your employer decided to be generous and give you a raise).
> Right, but I've never met anyone who looks at it this way - this part: "the employer social contributions will be around 40k". Is not your salary.
I don't know, maybe you should speak more to people about this. Literally everyone who I discussed it with (like dozens of people) see it in the same way:
* There's the money your employer spends to pay your salary
* There's the money you take home
* Everything in between is the government tax. There's absolutely no difference between "employer social contributions" and "employee social contributions" except in the name
Well now I kind of know one person who sees it differently, but this PoV still doesn't make sense to me.
> for the simple reason that if the government reduced the employer contribution to zero it wouldn't change anything about your take home salary(unless your employer decided to be generous and give you a raise).
Believe it or not, but for multi-national companies job offers in France are smaller for this very reason: you have a fixed budget to hire an employee, you subtract the "employers contributions" and calculate the gross salary you can offer in various countries where you have legal entities. There's also the "adjust to local market part", it's not a single-factor formula of course, but "contributions" play a huge role in it. After all budget is budget, you can go lower if you like but you can't go higher.
> Believe it or not, but for multi-national companies job offers in France are smaller for this very reason: you have a fixed budget to hire an employee, you subtract the "employers contributions" and calculate the gross salary you can offer in various countries where you have legal entities.
This! It's hard for me how some people can't see this.
We can see it, it's obvious that the system in France(and other EU countries) works this way, it's just not really relevant when talking about salary. When I sign an employment contract for 100k euro that's my income. The fact that the employer then has to pay another 40k or 100k or a 1M euro on top of it to keep me employed is not really relevant because it's not my salary - it's their cost to keep me employed. The main proof being in two things
1) like I asked you in another comment - if that contribution was removed, I'm sure you wouldn't feel like you got a paycut.
2) if that did happen, your employer wouldn't magically decide to give that money to you instead, right? It is not and never was your income.
Well obviously, yes, but again, I don't know anyone who looks at it this way. If your salary is £100k and you know your effective tax rate is 35% then you're taking home £65k a year. I don't know how much on top of that my employer is paying in contributions, if it's another £100k on top or zero - and frankly I don't really care? The negotiated salary is £100k/pa and that's what anyone uses as a number of their compensation, if I ask you your salary and you say it's €140k but that's including my employers social contributions......that's just weird? Are jobs advertised this way in France?
Edit:
I just want to add one more thing - this entire comment chain started by OP saying, and I quote "I have over 50% of my income taken from me into a collapsing welfare state/pension system".
The money that the employer pays to have you employed isn't your income, so adding it to your total earnings and saying "well I'm paying 50% of my income to the state" is just not correct. The employer probably pays money for the office and a desk for you to sit at, but it's not your income - it's part of their cost to keep you employed. I will say it again - if those costs dropped down to zero, you wouldn't say your income is now smaller, would you?
No, I'm sorry but this is just pointless, arguing about some technicality like "you can't call that income". That doesn't matter, these are just words.
What matters in real life is the size of the cut the government gets from the employee-employer transaction. That cut definitely includes all the "employer contributions". The bigger it is, the less the employee gets.
And no, it's not the same as the cost of buying the desk. If would be the same if the state prohibited remote work making a desk a necessity and then forced everyone to buy desks from state-owned providers at the price set by the state. In this case -- yes, absolutely, this becomes a "desk tax" which is eating into your income.
UPD Since you insist, I'll address this part too:
> I will say it again - if those costs dropped down to zero, you wouldn't say your income is now smaller, would you?
I'll go to my boss directly and say that "my income is now smaller than it should be" and ask for increase in gross. If this doesn't work out, I'll go and get an offer elsewhere. Knowing how hiring and budgeting works, this is the only sane course of action. Companies suddenly find them with money they've already budgeted but aren't spending, expect the arms race for professions with high demand.
In parallel to that I'll make sure to distribute raises to key members of my team anticipating them doing the same. I'll lose a few less valuable members of the team in the process because they'll receive offers that I won't be willing to counter.
In general, I pay more attention to what people do, not what they say. This is why I didn't reply to the question "you wouldn't say your income is now smaller, would you?" the first time -- it's inconsequential, but we can consider it if you like.
Except it isn't, because you keep doing this to pretend like you're paying 50% of your salary in taxes which just isn't true. No one advertises a job as "pays €60k a year" and then you find out it includes the employer contribution too so actually your salary is more like €40k. If anyone did that you'd call it fraudulent.
>>I'll go to my boss directly and say that "my income is now smaller than it should be" and ask for increase in gross
......why? You are paid exactly what you agreed to be paid. If your employer negotiated cheaper electricity deal for the office would you go and ask for a raise too?
>>The bigger it is, the less the employee gets
Again, why? The company would just pocket the money and not pay you more. I honestly don't see why they would.
>>In general, I pay more attention to what people do, not what they say
But this is a comments section on hacker news - discussion is the entire point.
But look, we just aren't going to agree on this. I just never met anyone in my life who would consider their employer's legal obligations paid directly to the state as part of their salary - if you do that's cool, I have no interest in making you change that view, we're two random strangers on the internet.
> Except it isn't, because you keep doing this to pretend like you're paying 50% of your salary in taxes which just isn't true. No one advertises a job as "pays €60k a year" and then you find out it includes the employer contribution too so actually your salary is more like €40k. If anyone did that you'd call it fraudulent.
You consider the world as static picture where a salary is what your contract says it is. It doesn't have to be like this. Your salary is what you contract says, but you have a certain power over what it says. Contract by itself is a derivative of the economic situation, not the source of truth.
In the end your salary is what you can negotiate and in this view you salary is heavily affected by employer contributions because it affects the negotiations. If your negotiation power increases, your salary can increase. If it drops, the company will pay you 3 months of wage, fire you and hire someone cheaper.
> ......why? You are paid exactly what you agreed to be paid.
Because I'm getting the maximum of what I can negotiate with the company. If they suddenly have more money in the people budget, I can obviously negotiate more. And if not, I'm getting a better offer elsewhere because the job market is very different now.
> If your employer negotiated cheaper electricity deal for the office would you go and ask for a raise too?
It depends, in a realistic scenario: no, because electricity is not a part of the people's budget, impact on the company profitability will be near zero and in the end this doesn't change the job market much, only affects my company locally. So counteroffer technique won't work either.
However in an imaginary case of electricity prices crashing all across the country overnight making businesses more profitable: yes, I think I'll try to negotiate a raise.
> Again, why? The company would just pocket the money and not pay you more. I honestly don't see why they would.
It depends on how hard it is to replace you. Effectively there's new money on the table and you'll split that money with your employer. If you're hard to replace, you'll take the bigger cut or even all of it. If you're easy to replace, you get zero or else they'll get someone else who agrees to get zero.
> But look, we just aren't going to agree on this. I just never met anyone in my life who would consider their employer's legal obligations paid directly to the state as part of their salary - if you do that's cool, I have no interest in making you change that view, we're two random strangers on the internet.
Of course, we argue for the pleasure of it but I think our intentions are different. I don't have a goal of changing your definition of words -- you can keep the ones you like. However I think it's worth trying to change your world view. My suggestion: try thinking of your salary (if you're a hired worker) as something you can negotiate not something set in stone (you can call it $alary if you like). Twice in my career I approached my employer with an external offer and twice I got a 2x counter-offer. They didn't say "You are paid exactly what you agreed to be paid", it's not how it works.
You need to play it well but it's an extremely strong negotiation technique. There are others but they're more complicated to execute so I suggest to start with this one.
It IS your salary. If the employer didn't pay it, YOU would have to pay it anyway. If you are a freelancer, you will have to pay that employers share anyway.
It's the cost of social security systems, and someone has to pay it: You. With your work hours and salary.
>>It IS your salary. If the employer didn't pay it, YOU would have to pay it anyway.
So if the government reduced the share that the employers pay down to zero tomorrow, would you then go to your partner/family/friends and say "hey, I just got a paycut at work" ?
When you are negotiating payment for any good and service, you care only what the end cost is to you.
It doesn't matter how you decide to slice it - "this share you pay, this share I pay" at the end of the day it will be seen through the lens of Total Cost of Ownership.
I like how you didn't answer my question. If you don't see it as a paycut then it's not part of your salary.
>>you care only what the end cost is to you.
Yes, so I care what my salary is. What the employer has to legally pay to employ me is literally irrelevant other than academically. It's not my salary, the same how their cost of maintaining an office or providing me with equipment to do my job isn't my salary.
No, it adds up to almost 50% of your wage. People who make millions of dollars (freelancers, company shareholders, etc) pay capital gains taxes of 25%. High earning people have capital, not a wage, either by way of company shares or asset payouts. They pay a tiny bit more tax and no social obligations
You forget that the 42% band kicks in at 68000 (up until 280k) not 10k from the median wage. You pay this with 1.2% of the median wage, when in the distant past (around 1960) you had 42% at 15 times the median wage. They never changed these bands to adjust for inflation.
>> People who make millions of dollars (freelancers, company shareholders, etc) pay capital gains taxes of 25%. High earning people have capital, not a wage, either by way of company shares or asset payouts. They pay a tiny bit more tax and no social obligations
Yes, obviously - it works the same way here. You just said that "anywhere in Germany" you will pay 50% of your income in taxes, so I'm asking if your average worker actually pays that, or even a high earning IT worker/lawyer/doctor, or just somone who takes home millions in pay(not capital gains) so that the averages catch up.
>>You forget that the 42% band kicks in at 68000 (up until 280k) not 10k from the median wage.
I didn't forget, but like I said 3 comments earlier - your average will work out closer to 30% not 50%(I'd guess) because you only pay it on anything above the threshold, not on your entire income. Again, Germany seems very generous here - in the UK you start paying 40% once you cross £50k/pa.
> It feels disingenuous to me to see "someone else pays tax, so that counts as a tax on me" leveled as a serious argument.
They don't pay tax. They pay half of the social insurance fee for their employer. Of course that half is part of the wage you're being paid.
> Maybe it's just my cold pragmatism speaking, but if your employer suddenly didn't have to pay that tax, I don't think they would bump your salary up.
I could certainly use that range to negotiate my salary.
> Americans make this same argument (they call it "trickle down economics"). So far, it doesn't seem to have worked out for them.
None of this has anything to do with trickle down economics. The trick is that if social insurance payments go up, which they do a lot, my employer is charged automatically and I no longer have that room for negotiating a raise.
Yea, and it's the guy above ironically. If I add my net here [1], I can see that I land pretty much exactly at 49.7% of my wage being deducted from when my employer pays me to where it lands on my bank account.
