From: baker@Xenon.Stanford.EDU (Andrew Baker)
Subject: Re: Tax Comparisons (Was: Ruling parties in Norden)
Organization: Computer Science Department, Stanford University.
Date: Fri, 17 Apr 1992 18:40:48 GMT

In article <1992Apr17.133352.26656@kth.se> matsd@LINK.Physchem.KTH.SE writes:
>In article <1992Apr16.221415.6857@lth.se>, sundinKC@dna.lth.se (Anders Sundin) writes:
>AS>Correct me if I am wrong but should we not compare like this (I pull out my
>AS>trusted HP calculator). Lets say that one US $ is 6 kr.
>AS>
>AS>Swedish taxes as above                            US taxes as above
>AS> 300000                     "Cost of salary"                50000
>AS>-111000  37%           employer tax | social sec    15%     -7500    
>AS>-------                                                    ------
>AS> 189000                         "Salary"                    42500
>AS>-103950  34.65% (=55% of    Federal+local tax       38%     19000    
>AS>-------          189 kkr)                                  ------
>AS>  85050                  Money left for consumption         23000
>AS> -18711  22% (18-25)         Tax on consumtion       5%      1150
>AS>-------                                                 ------
>AS>  66339                      What we have left              21850
>AS>
>AS>Then the swedish taxpayer has 66,339 kr ($11,056) left while the american
>AS>has 131,100 kr ($21,850).
>AS>...
>
>And this is commented by baker@Xenon.Stanford.EDU (Andrew Baker) who writes:
>
>AB>This overestimates the US tax burden for several reasons.
>AB>(1) Someone who only makes $50000 would not be in the very top tax
>AB>bracket, and in any case, his *average* (as opposed to marginal) income
>AB>tax rate would be far less than 38%.
>AB>(2) Half of the Social Security Tax is a so-called "employer's
>AB>contribution" which isn't included as part of gross income (and thus
>AB>would not be subjected to further taxes).
>AB>(3) Benefits (medical insurance, pension contributions, etc.) are
>AB>usually supplied on top of the gross salary, and are thus also
>AB>untaxed.
>AB>(4) There are other loopholes.
>
>Just a short comment to Andrew:  Your comments (2) and (3) above are not
>valid here, since we are discussing the *total cost* from the employer's
>perspective. 

It makes a difference when computing the income tax since the tax is
being applied to a smaller amount (see below).

>I redid Anders's tax calculation.  Unfortunately Andrew didn't give any
>other figures than those Anders used, so comparasion with these two will
>not be just. I've been using the rules as I remember them from last
>January. 

I'll give it a shot below.

>(I did this calculation on a Macintosh, so don't trust the figures too 
>much [:-)])
>
>							Amount left
>
>If the employer's cost is 300 000 kr, the salary is 	219 000 kr
>The 37% "arbetsgivaravgift" is added on the salary.
>
>Firstly, you get to make a 10 300 kr (?) deduction   	208 700 kr
>("Grundavdrag")
>
>Then there are local taxes, varying from 26.65% to 
>almost 35%.  I think the average is around 32%
>		32% of 208 700 kr is 66 784 kr		141 916 kr
>
>The state income tax is 20% on the amount exceeding
>186 000 kr or so (might be 189 000 kr or 184 000 kr). 
>	20% of (208 700 - 186 000) kr = 4540 kr		137 376 kr
>
>When counting from this end, the moms is 20% on goods
>and services not subject to the lower rate, then it is 
>15.25%.  I'll average this to 18% (same proportions 
>as Anders used).  18% of 137 376 kr = 24 728 kr		112 648 kr
>(The American rate would be 4.76% when calculating
>in this manner.)  (These precentages, 20% and 15.25%,
>are the official ones - btw.)
>
>Then you get your "grundavdrag" back, + 10 300 kr!	122 948 kr
>
>Still, there are taxes to be paid on tobacco, alcohol, gasoline,
>energy(!), cosmetics, etc.   These are, however, very hard to estimate
>since they vary much from one person to another.  The resulting tax is
>at least 59%.  

So we are considering the person with an employer's cost of $50000.
Some portion of this will be in employer's contributions for nontaxable
fringe benefits and for his part of the social security tax.  To make up a
totally arbitrary number, assume that these amount to $10000.  Then the
employee's pre-tax income will be $40000.
Social security employer's contribution = .0765 * $40000 = $3060

Social security employee's contribution = .0765 * $40000 = $3060
Federal income tax uses the following method (for an unmarried person with
no dependents): [0% on the first $5550, 15% on the next $20350,
28% on the next $28950, and 31% thereafter].  For $40000, this comes
to: $7000.50
State income tax: probably around 5% * $40000 = $2000 at most even in the
states with highest taxes.
We will ignore property taxes, as well as the various nickle and dime taxes.

This gives a total take-home pay of $40000 - 3060 - 7000 - 2000 = $27940.

The untaxed fringe benefits were of value $10000 - 3060 = $6940 (remembering
to deduct the employer's portion of the social security tax).  (One might
object to adding this back in on the grounds that it doesn't make any
difference whether your medical insurance is paid for by taxes or from
your salary; however, your stake in a pension fund is a real
asset that you can access for some purposes, and similar remarks might
be made about other benefits.)

Total amount = $27940 + 6940 = $34880.
Subtracting a typical 5% sales tax gives around: $33100 (this isn't
really right because the sales tax doesn't apply to a lot of things).
$33100 * 6kr/$ = 198600 kr.


                 
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