Exactly what I was going to reference.

An Aussie with a $1M home, and a $500k mortgage will have $500k in "wealth." But if that wealth is tied to their home, and all other homes cost the same or more, what good does that do them?

We're seeing the same happen in many US cities.

Same here. Most of my "wealth" is tied to the house and I would have to move to an area of limited opportunities to get one substantially cheaper.

The other interesting part is that one has to pay annual tax and maintenance on that "wealth". Unless the market is very hot, primary homes are not a very lucrative investment compared to other assets.

Is wealth in a home an illusion, then?

To some extent, yes. It's fairly illiquid, and unless you're willing to be homeless, move from the city to a rural area, or take a serious cut in living style, you're likely going to need to buy a replacement at similar cost.

It's certainly not the same thing as having that wealth in the bank, or as stocks.

It does help with loans.

If I take a $100k loan, my wealth doesn't go up $100k.

To the OP's question, the value in a home is not an illusion if you can do things like borrow against it.

Sort of. In the same way that selling 2% of your company for $10M gives your company a valuation of $500M. We don’t know what the other 98% of shares would really sell for.

In a given year, just over 1% of a typical city’s homes are transacted. Over a decade, about 10-15% are transacted.

It's an illusion because it is based on the presence of infrastructure, other people and their work. If those people weren't there your house wouldn't be worth as much. You can build the same house in the middle of nowhere and it would be worthless.

That doesn't make it an illusion. Yes if they circumstances are different the house will have a different value.

maybe not a full 'illusion', but it's just not liquid. when using 'net worth' calculators, I severely underestimate the value of my home - between delays, fees in selling, and the cost of moving someplace else, there's probably 10-15% gone from whatever paper 'wealth' the raw number is. It doesn't really help me in any meaningful way with respect to planning. Most of my stocks are liquid. There's a potentially similar hit re: taxes, but... I can buy and sell $1000 of stocks tomorrow, I can't buy/sell $1000 of 'house' tomorrow (REITs notwithstanding).

Right up until you downsize, move to a cheaper area, or pass the value along to the next generation (you die).

It doesn't change the median to mean discrepancy though. Australia has a smoother wealth divide and that's purely policy.

I was shocked when i found out there's no 0% tax bracket in the USA. All that paperwork to collect tax from those who are struggling. Meanwhile the federal tax caps out at 37% and doesn't even consider very high wage earners. The higher minimum wages in Australia are also clear cut.

> I was shocked when i found out there's no 0% tax bracket in the USA.

That isn't exactly true:

https://www.npr.org/sections/thetwo-way/2012/09/18/161333783...

Yes, the bracket isn't zero percent, but after deductions and the child credit, it effectively becomes that. That doesn't include payroll taxes however, which are much more regressive (in the case of social security with an income cap even more so). Does Australia exempt low earners from payroll taxes as well as income taxes?

I often see that payroll taxes are regressive. But the benefits from payroll taxes are progressive... Replacing a top 1% income or standard of living with unemployment or social security doesn't happen in the US system. Are payroll taxes regressive relative to the benefits paid from payroll taxes? I genuinely don't know.

OK, but you've highlighted the difference between US and AU median wealth; a lot of Australian wealth is tied up in this real estate. My relatives who own property (purchased cheap decades ago) can hop from enormously expensive house to enormously expensive house; the ones that don't can only dream of home ownership anywhere near a major city.

There is functionally a 0% tax bracket in the US, because everyone gets a default tax deduction.

In general, I agree with you - particularly in the realm of healthcare and college educations - but there's a lot of nuance in the details.

"The higher minimum wages in Australia are also clear cut."

Do you have any links to studies around this? From what I've heard of the past couple years, most economists believe only a marginal increase to around $10/hr would be beneficial. I'm not arguing against that, but $10/hr doesn't seem like it would afford those workers the opportunity to build wealth, and increasing it further is supposedly not going to provide any additional benefit to that group.

The median to mean discrepancy is not particularly interesting though, given that median disposable income between the two countries is almost identical (in other words there are no winners with a "smoother wealth divide," only losers).

Given the other comments about the real estate situation in Australia it seems problematic to compare median wealth instead of disposable income.

37% for federal, and another 13% in places like California, bringing it to 50% (vs 45% in Australia)

Do you understand how marginal tax rates work?

Let's say you make $1,000,000 a year in California. Your effective tax rate is 11.78 percent because the top 12.3% rate is only applied to income you earned over $599k. (13.3% applies only on income above $1,000,000, which you are too poor to pay yet).

Same with federal taxes, that $1,000,000 earner is going to pay an effective rate of 33.3%. Combined, you are paying 45% state and federal income tax.

...Yes I understand how they work, thank you very much.

In California, the highest possible tax rate on earnings, would be 50%.

In Australia that tax on the highest earnings would be 45%.

Nowhere did I claim that all your income is taxed at the same rate. I was replying to the quote "federal tax caps out at 37%" which ignores the significant 13% additional tax in CA.

You would have to be making $5,000,000 a year before you are paying 50% in California (see https://smartasset.com/taxes/california-paycheck-calculator#...).

Sure, but that doesn't change the point of my comment which is that the income tax rates in some US states will actually exceed Australia's in higher earners.

Ya, if that is your point. Australian taxes ramp up faster, so low earners will pay more tax in Australia than in California. E.g. Australia making $50K USD/year will pay 17% in taxes (according to https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=ST..., don't forget to convert to AUD first), while a Californian will only pay 15%.

(If you ignore things like cost of healthcare and college.)

I thought healthcare was funded by a payroll tax in Australia. Are you claiming that they are funding it via income tax instead?

There is also an extra tax to pay for college that graduates (4 percent) pay if they make more than $39k (AUD I think, not sure what the basis that they have to pay is, however).

Both healthcare and college seem to be funded separately from income taxes.

I'm responding to "low earners will pay more tax in Australia than in California".

We were talking about income tax (apples), and you begin to talk about payroll taxes and something funded via an extra tax on college graduates (oranges).

It might be that overall the poor get a better deal in Australia. But surely it's not because of the income taxes (slightly higher than CA for low earners) or the consumption taxes (much much higher than CA). Maybe they get a better deal on health insurance and payroll taxes, plus the idea of paying for college via successful graduates is one that America should definitely consider adopting.

With the exception of NY State, where there's a recapture at $1.1M that makes rates no longer marginal...

Recapture only applies to tax credits, and is itself gradually phased in. It also doesn't seem to be based on income, but rather not adhering to the terms of the tax credit over the long term:

https://www.tax.ny.gov/bus/ct/Recapture-of-tax-credits.htm

The state doesn't call it as such and it doesn't really mention much about it anywhere, other than implicitly in worksheet 7 on page 59 of the 2020 IT-201 form. It's still a recapture, though, and it does apply to income. It's separate from tax credits. Try the worksheet. By the way, most online tax calculators seem not to know about it, either.

See e.g. https://www.bogleheads.org/forum/viewtopic.php?t=247046 where someone points out that CT does the same and calls it recapture.

I'm not finding that to be very reliable, as I can't find a news article or even someone else complaining about the same problem. Are you sure they just didn't mess up on their tax return somewhere?

You can enter toy numbers in TurboTax and see, but I found more references, e.g. when they wanted to make NYC track NYS' model:

https://www.nytimes.com/2003/05/12/nyregion/highest-tax-will...

https://www.empirecenter.org/publications/new-yorks-ugly-ste...

AR, too? https://taxedright.com/new-york-taxes/

Could you explain the recapture please?

For 2020, the top bracket starts at $1,077,550. Then, gradually through the first $50K into the bracket, it becomes a full 8.82% tax on every single dollar of income, other brackets included. For 2021, that rate has been bumped up to 9.65% and two new ones — 10.30 and 10.90% — have been added. I think the cut off amounts at which this flat rate system phases in are still the same.

But the craziness with the most recent changes doesn't end there. From July 2021, employers are required to withhold from bonuses and overtime at the new supplemental rate of 13.78%, which is quite a bit higher than even the top bracket. That guarantees even more and larger refunds for taxpayers next year. Or, if you look at it another way, a bigger interest-free loan to the state.

The US gives deductions which can make your effective tax rate 0%.

Like the first sentence at the WP article says,

> The Australian property bubble is the economic theory that the Australian property market has become or is becoming significantly overpriced [...]

IOW bubbles can only be called historically asset prices fall dramatically and even then typically in housing they don't fall that much.

Housing prices have been rising much faster than inflation in a lot of places due to historically cheap financing. The alternatives to "bubble popping" are that they plateau, or continue rising, or decrease moderately over time.

The point is that the difference in wealth between AU and US is, to at least some extent, due to a vast amount of largely inaccessible paper wealth.

If I'm willing to sell my house in Sydney and move to rural Queensland, I'm wealthy. If I'm not, selling my $1M house means I have to go find another $1M house now.

(And yes, the median house price in Sydney is over $1M.)

I think big cities have diverged from the country average globally and the impact on country average metrics then depends on the degree of urbanization.

According to https://en.wikipedia.org/wiki/Urbanization_by_country the urbanization rate in AU is ~2x the US, so people are moving to cities at a much bigger rate? Even in the face of the high prices.

But yep I still see what you mean, on the country-averages level the AU prices seem to have been constantly rising faster in AU than US.

The median home price in Melbourne is nearly $1M as well; between the two cities, that's about 40% of the population of Australia that needs a million bucks to own a house.