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If I understand correctly, the high income taxes in England start around a salary of $80,000 per year. Or I was told that is the approximate salary range where English income taxes really start to take a bite. I would not call $80,000 a year being wealthy.
The higher rate of tax actually kicks in slightly lower than that. i.e.
Additional Rate Tax @ 50%: £150,000 and over ($241,740 + )
That compares to US taxes (for a single person):
10% rate on earnings up to $8,700
15% rate on earnings between $8,700 and $35,350
25% rate on earnings between $35,350 & $85,650
28% rate on earnings between $85,651 – $178,650
33% rate on earnings between $178,651 – $388,350
35% rate on earnings over $388,351
The easiest way to consider 'which sections in society pays more tax across both countries' is probably to take some examples.
28.22% of Americans live in households with incomes less than $25,000, so this seems a reasonable place to start. A single US wage earner making $25,000 pays $1,852 in tax, an effective tax rate of 7.4%. $25,000 equates to £15,512, and a UK taxpayer earning that amount pays £1,481 in tax, an effective tax rate of 9.5%.
Median US personal income is $50,054. A US taxpayer at that income would pay $6106 in tax, which is an effective tax rate of 12.19%. The median US income figure in British Pounds is £31,058, and at that income a British taxpayer would pay tax of £4,590, an effective tax rate of 14.77%.
A high earner in the USA earning $100,000 pays $18,730 in tax, an effective tax rate of 18.73%. This equates to a UK taxpayer earning £62,138, who would pay £14,739 in tax, an effective tax rate of 23.72%.
There are a couple of considerations to be made before this comparison can be understood. It does not include Social Security payments for the US taxpayer, nor does it include the equivalent National Insurance payments for the UK taxpayer. Furthermore, it doesn't take into account the fact that while both the US and British Governments are running similar budget deficits as a proportion of GDP, the British deficit is slightly less than the US. (9.3% US vs 8.7% UK 2012 estimate: It doesn't sound much but when we're talking about 0.5% of the GDP of the USA I assure you it is.) The point being that while UK taxes are slightly higher, the UK Government is borrowing slightly less.
Even considering the difference in budget deficit, it's probably fair to say that British taxpayers in typical wage brackets pay slightly more tax than their US counterparts. The really big differences in UK tax levels vs US tax levels do not begin to appear until multi-million dollar incomes are considered and the upper 50% UK tax rate becomes a significant factor. However, while I trust it won't be necessary for me to go into details, British taxpayers get more in return in terms of social services from the Government than US taxpayers do. It would be highly debateable whether the costs of health insurance/prescriptions etc. could be made up in a couple of percent of a typical American income.
It is in Northern Minnesota. Probably at least 20-25% of middle-aged adults (can) live that way. Possibly even more, since cabins are often in the family.
Well, that's doesn't sound like its the usual thing for most families even there. Since some are sharing streetviews, here's the neighborhood I was raised in. Still live in the Sunset District of San Francisco not far from here.
It has more in common with a city or town in the UK in many ways than other parts of the US. I had a friend visit from England and she was surprised it was so similar (and even chillier than London was the three weeks she visited that summer!). Those rowhouses were built in the 1920s-1940s. Believe it or not they go for about $750,000-$850,000. My folks bought theirs in the early 1960s for around $30,000! There is so much difference in the various parts of this country its impossible to generalize.
A new engineering graduate in the US is making $60,000+ right out of university with no experience. That person would be taxed at 40% in the UK. Ouch.
US$60,000 is GBP37,200 (if I've converted it correctly). So the 40% tax would only be paid on on the amount over GBP34,370. So the 40% tax would only be levied on GBP2,830 (or US$4,528).
If all you're trying to say is that on the whole, US citizens have a greater disposable income, then I don't think we have much to debate about! I completely agree that above a certain income bracket (I'll do some maths in a future post to find out exactly where that point kicks in), American people have greater disposable income than their British counterparts.
The only point I'm endeavoring to make is that while this fact is indisputably true for Americans as a whole, it does not necessarily hold true for poorer Americans. I'll attempt in a later post to find out at what income level it starts to make a difference.
Thank you for the well researched post from the Duluth area, I always find it interesting to see how others live and enjoyed looking through it!
Eoin
I'd say it's a pretty safe bet that upward mobility for the poorest people - in the US or the UK - is difficult. A wiser person than I once said, "The poor are always with us."
There's a great range of incomes in the US - and just how far individual incomes stretch varies greatly, not only from state to state, but from town to town. Housing costs are a huge variable, as are gas prices, grocery costs, state and local taxes, etc.
Not only that, but poorer Americans have many social programs they are eligible for, which offsets their poverty to a great extent. I know, because I was once one of the poorest Americans (now in the top 2 percent of households when it comes to income). Though we had little disposable income during our years of poverty, we did have social programs which assured the health of our family, which is the most important thing in the long run. Food stamps, housing assistance, health insurance and medical care, food vouchers for the kids (WIC), free/reduced daycare, free or reduced prices on two meals a day at school, tuition grants and assistance, etc etc etc. All through local, state, and federal government programs.
I'm sure there are many similar programs in the UK.
As someone else brought up, $35,000 a year is VERY different in Selma, Alabama than it is in New York City.
Our tax rates are tiered, so no. They would not pay 40% in tax on their total income.
They wouldn't have to pay for health insurance either.
If they choose not to, I believe. There are businesses there that do offer private health benefits as a way to attract quality employment, though I think that's limited to larger companies. Canada does this as well
By the way, I need to point out something else when it comes to income brackets in the US. Most of the stats being thrown around are talking about "ADJUSTED NET INCOME" from what I can tell. In other words, AFTER deductions on tax returns, which can SIGNIFICANTLY bring down a person's "income" level.
For instance, say someone is self employed. Their REPORTED, ADJUSTED income is going to generally be a LOT lower than their actual income - because of all the tax deductions they can take to lower that reported income.
The average family has a certain income - but then can take tax deductions for each dependent, healthcare costs, sales tax, mortgage interest, property taxes, childcare, tax credits for working, etc etc etc. Someone self employed can usually take vehicle costs, cell phone bills, internet, many meals, the cost of their home office, most of their gas and vehicle maintenance costs, even their car payment, etc etc etc off their gross income, which greatly reduces their adjusted net income.
I wouldn't say that either system is superior - just different. Each system has it's pros and cons but both countries enjoy a high standard of living, opportunities for upward mobility and career advancement, and career satisfaction.
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My folks bought theirs in the early 1960s for around $30,000! There is so much difference in the various parts of this country its impossible to generalize.
