Author Topic: Help me understand European net Earnings vs. US net Earnings  (Read 3289 times)

timeforfun

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Help me understand European net Earnings vs. US net Earnings
« on: February 04, 2018, 08:28:58 AM »
Hi fellow Mustachians,

i live in Germany. I would love to understand the difference in US vs. german/european net earnings. A german net earnings sheet would look like this:


Gross earnings80 000 EUR
Taxes
Income Tax:  (1) 20 257EUR
Church tax (2) 1 371 EUR
Solidarity Tax (3) 942 EUR
Tax Total22 571EUR
Social Security
Pension (4)7254
Unemployment (5)1170
Health Insurance (6)4460
Long term care insurance (7)677,03
Social Security total13 561,43
Net earnings43 867




I think I should tell you a bit about our german / european system first:

Taxes:
(1) These taxes are calculated for a singel person with one child. They can vary a lot.
(2) If you are member of one of the two great religions in Germany (Roman Catholic or "German" Protestand) you have to pay taxes to the church wich the state collects.
(3) Only people in the western half of Germany have to pay this tax. It is because of the reunion and may be abolished soon.

Social Security:
(4) This is maybe most important. The State forces you to save for your pension. You have to pay a certain amount to a pension fund. Your employer (if you are employed) does have to pay the same amount as well. So your savings for your pension in this example would amount to around 14 500 EUR per year. If you belong to a certain type of profession (doctor, lawyer etc.) you do not need to pay to the state. You may pay to a profession speific pension fund. This is better in most cases.

(6) This already is the highest amount you would have to pay for your health insurance if you decided to go with the state insurance. Kids ans unemployes spouses are covered for free.


I would like to know how this compares to a US Income statement. Your US gross earnings are higher. Net earnings as well in most cases. In return we do not need to pay as much for ourselves i think. Eg University, (in my state) Kindergarden is free of charge.

If I would calculate my savings rate would i include the state pension?

Greetings from Germany!

Ocinfo

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #1 on: February 04, 2018, 09:24:46 AM »
US taxes are done at many government levels so vary a lot based on where you live and what you choose to buy/own. Each state and even city have different income tax rates (0-10%+) sales tax (0-10%, more on auto fuel), property tax (0-2.5%+ per year), and sin taxes (cigarettes, alcohol, etc).

I’ll just focus on income taxes + typical paycheck withholdings. The 80k euro salary is equal to high $90s in USD with the current exchange rate. At this level of income, a single person with a kid would likely pay less than 25% total income and social security taxes. They would also have a few thousand more for healthcare so total deductions are likely less than 30%.

You can run your own numbers on https://www.calcxml.com/calculators/trump-tax-reform-calculator?skn=#results and https://www.paycheckcity.com/calculator/salary/

We then have all the other consumption based taxes that raise the rate further but it looks like it would be significantly less than the total in Germany. But, like you noted, we have fewer overall societal safety nets. K-12 public school is free (typically paid through property tax).




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GU

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #2 on: February 04, 2018, 09:35:38 AM »
I don't have time to do an in-depth post on this, but for a U.S. wage earner (not a business owner):

Gross income

(federal income tax)
(federal payroll tax [social security & medicare])
(state and local income tax [if applicable])

Net income

Various goods are subject to excise tax which are embedded in the price of those goods (e.g., gasoline, alcohol).  Also, most Americans pay state and local (i.e., sub-national) sales taxes (like a VAT) and real property taxes.  Public schooling K-12 is basically free (but funded heavily by local property taxes).

Health insurance is "private," and so not really considered a tax, though it is a substantial expense for a lot people. Unemployment taxes are paid by employers, not employees (at least directly—query the true tax incidence).  And disability is baked into the Social Security system.  Many people get supplemental disability and long-term care insurance through the private market.

Few Americans count their state-provided old age pension ("Social Security") in their private savings rate. Whether they should or not is a legitimate question.  I think most Americans do not out of an abundance of caution (you'd rather have too much than too little).  Also, the government can, and already has, eroded the value of SS benefits (the retirement age has already been pushed back twice). In the U.S., both SS and Medicare are vastly underfunded.  Most people believe that currently living young people will still get SS, but many believe the benefits will be reduced relative to today (whether this is done directly or done indirectly by inflation that is not accounted for in the SS formula). 

metzlerandy

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #3 on: February 04, 2018, 03:04:58 PM »
Just a short note on tax (3). Every German pays that tax, I moved from “West” to “East” Germany a  couple of years ago, so this is a thing which many people believe (I did so myself), but it’s not true.

timeforfun

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #4 on: February 05, 2018, 12:52:39 AM »
Thank you all very much! We do have to pay a signifikant part of our gross earnings into a state pension fund (9,45 %) and the employer has to match that.

How does your US 401k compare to this system?

« Last Edit: February 05, 2018, 12:55:59 AM by timeforfun »

Sibley

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #5 on: February 05, 2018, 07:24:05 AM »
Thank you all very much! We do have to pay a signifikant part of our gross earnings into a state pension fund (9,45 %) and the employer has to match that.

How does your US 401k compare to this system?

401k is not available to everyone, it's provided by the employer. Not all employers offer a 401k.  If you have access to one, contributing to it is optional. The employer has the option of contributing to it as well, but are not required. There are annual limits of how much can be deposited into a 401k.

There are several other retirement savings accounts that may be opened by individuals. The exact type of account and amount that can be deposited will vary depending on circumstances.

In addition to this, the US has Social Security. This is a forced pension plan which employees and employers have to contribute to. There are certain types of jobs that are exempt from Social Security, I don't know as much about those but I believe they'll have something else in place to serve the same purpose. Social Security can be received starting at 62 and provides a poverty level income.

If you're thinking all this sounds very complex and totally inadequate, you're right. It's a mess. It will bite us sooner or later.

Hula Hoop

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #6 on: February 05, 2018, 11:45:44 AM »
I also live in Europe (Italy) and I'd just like to point out that it's really hard to make generalizations about Europe and Europe does not equal Germany.  We have very little in common with Germany here in Italy.  High taxes and much less of a social safety net.  I think a better thread title would have been "Help me understand German net earnings vs. US net earnings."

MMMarbleheader

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #7 on: February 05, 2018, 12:42:28 PM »
Do you pay property taxes?

Generally this is what funds schools in the USA.

I make $100k with a wife + 2 kids and under this new Trump tax plan I will pay about

$2,000 in federal income tax (after maxing out the 401k and possibly as low as $1300 if I contribute to a traditional IRA for my non-working wife).
$3,300 in heal insurance,
$7,600 in medicare, SS,
$4,000 in state income tax
$5,000 in property tax.


I have been reading the book "a year of living Danishly" and thinking about taxes. I have come to the conclusion that there is no better country to be smart and aggressive than the USA. You can amass a fortune quicker than many places. It is not the best place to be average or below average. These European countries seem to uses taxation as a well to protect the average person from themselves (180% markup on Cars in Denmark and a 25% VAT on everything else will do that)

In America people are forced to make a lot of their own decisions which can be good or bad. This country was built by people fed up with the status quo who took a huge risk to come over to a place they never been to make a better life.

timeforfun

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #8 on: February 05, 2018, 01:55:08 PM »


I have been reading the book "a year of living Danishly" and thinking about taxes. I have come to the conclusion that there is no better country to be smart and aggressive than the USA. You can amass a fortune quicker than many places. It is not the best place to be average or below average. These European countries seem to uses taxation as a well to protect the average person from themselves (180% markup on Cars in Denmark and a 25% VAT on everything else will do that)

In America people are forced to make a lot of their own decisions which can be good or bad. This country was built by people fed up with the status quo who took a huge risk to come over to a place they never been to make a better life.

As far as i understood the differences this is 100 % true.

In Germany you are forced to be health insured, you have to pay for unemployment insurance e.g. Everything is more leveled. Sadly the german system ist not good for FIRE since i am not able to decide to NOT pay into the state pension fund and put the money in an ETF instead which i would be able to sell with 40.

timeforfun

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #9 on: February 05, 2018, 01:59:55 PM »
I also live in Europe (Italy) and I'd just like to point out that it's really hard to make generalizations about Europe and Europe does not equal Germany.  We have very little in common with Germany here in Italy.  High taxes and much less of a social safety net.  I think a better thread title would have been "Help me understand German net earnings vs. US net earnings."

Yes of course "europe" is very generalized still I guess the german, dutch, french, scandinavian, austrian and swiss systems are comparable. I do not know the italian system.  I do know italian food  tough, which is great and italy itself which is my favourite holiday destination.

Scandium

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #10 on: February 05, 2018, 02:16:16 PM »


I have been reading the book "a year of living Danishly" and thinking about taxes. I have come to the conclusion that there is no better country to be smart and aggressive than the USA. You can amass a fortune quicker than many places. It is not the best place to be average or below average. These European countries seem to uses taxation as a well to protect the average person from themselves (180% markup on Cars in Denmark and a 25% VAT on everything else will do that)

In America people are forced to make a lot of their own decisions which can be good or bad. This country was built by people fed up with the status quo who took a huge risk to come over to a place they never been to make a better life.

As far as i understood the differences this is 100 % true.

In Germany you are forced to be health insured, you have to pay for unemployment insurance e.g. Everything is more leveled. Sadly the german system ist not good for FIRE since i am not able to decide to NOT pay into the state pension fund and put the money in an ETF instead which i would be able to sell with 40.

So not that different from the US? Until recently (and I predict as some point again) you were forced to have health insurance (and most do). And you pay medicare/medicaid tax in addition. You also pay social security tax for your pension and/or unemployment/disability whether you want to or not. It's 12.4% I believe? Split between employee and employer.

Heh, I enjoyed the doublespeak of "Solidary tax". Isn't all tax solidarity? :S

daverobev

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Re: Help me understand European net Earnings vs. US net Earnings
« Reply #11 on: February 05, 2018, 04:50:50 PM »
I also live in Europe (Italy) and I'd just like to point out that it's really hard to make generalizations about Europe and Europe does not equal Germany.  We have very little in common with Germany here in Italy.  High taxes and much less of a social safety net.  I think a better thread title would have been "Help me understand German net earnings vs. US net earnings."

The number of people who say "I'm moving to Europe, what's it like?" or similar :-/

Ireland? Bit different from... ooh, Greece. Poland. Portugal. The UK (oh, Brexit...). France. The NL.

All *completely* different.