> 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%.