Income Taxes: Australia vs USA

Let's assume that a person earning the median US income - $50,233 in 2007 (source) - earns this amount in the USA, while another person earns the equivalent in Australia.

In the US
(using 2009 tax brackets, head of household):

$1195 +
$5032.35 +
$7410.35 (14.75% of income)

In Australia (taxable income of $50,233 @ US$0.6522 per A$1.00 = A$77020.85):

A$4200 +
A$17106.26 -
A$1856.56 (Family Tax Benefit, 2 five year old children)
US$9945.85 (19.8% of income)

Now what about Black Americans? Median household income for Black Americans is $34,001 (source, pdf, 1.9Mb) . How would they fare in the US and Australia?

In the US (using 2009 tax brackets, head of household):

$1195 +
4502.50 (13.2% of income)

In Australia (taxable income of $34,001 @ US$0.6522 per A$1.00 = A$52132.78):

A$4200 +
A$9639.83 -
A$2608.27 (Family Tax Benefit, 2 five year old children)
US$4585.98 (13.5% of income)

Now let's check out a certain high-earner from the United States. Let's pick architects. The median household income for Architects in the US is $71,400 (same source as Black Americans above). How much tax would someone earning US$71,400 have to pay in the US or Australia?

In the US (using 2009 tax brackets, head of household):

$1195 +
$5032.45 +
12702.20 (17.8% of income)

In Australia (taxable income of $71,400 @ US$6522 per A$1.00 = $109,475.62):

A$18,000 +
A$29,790.25 -
A$903.44 (Family Tax Benefit, 2 five year old children)
US$18,839.98 (27.1% of income)

In summary therefore:

Households on US Median income (US$50,233):
= 14.75% of income taxed in USA
= 19.8% of income taxed in Australia

Median household income for Black Americans (US$34,001):
= 13.2% of income taxed in the USA
= 13.5% of income taxed in Australia

Median household income for Architects in America (US$71,400):
= 17.8% of income taxed in the USA
= 27.1% of income taxed in Australia

Given the fact that Australia provides universal health care, the amount that low income earners gain in not paying health care costs means that low income earners in Australia are actually better off than those in the US, despite paying slightly more in income tax.

Australia also taxes high income earners at a higher rate.

Any mistakes in my calculations? Feel free to comment.


Paul Mitchell said...

OSO, I am not an architect, I work in the field of architeture, but I also pay 54% of my income in taxes. I pay self-employment tax, I pay FICA and Medicaid, and I pay 3,4,5% in state taxes. So, your figures are slightly skewed.

One Salient Oversight said...

I thought US states get their revenue with a sales tax. You're in MS?

One Salient Oversight said...

You run your own business. Do you pay yourself?

Paul Mitchell said...

Yes, states do charge sales tax, Mississippi is seven percent, BUT, there is also a state income tax of 3% of the first 5000, 4% on the second 5000, and 5% on all above that amount. We also pay FICA and Medicaid at 13.4%, plus usage taxes. I did NOT figure usage or sales taxes into my 54% because I have never sat down to figure that out, so it is really closer to 65%, but I am unsure on that. The 54% is ETCHED IN CONCRETE, provable with no debate.

This does not include my corporate taxes either, I am unsure on those because I just incorporated last year and the accountant has my stuff right now.

OSO, it is all I can do to not answer that last one as a smart ass, but of course I draw a salary from my business.

One Salient Oversight said...

It was actually more of a technical question - some people pay themselves wages, others simply use their business income as the same thing (depends on country, tax laws, etc)

One Salient Oversight said...

Here in Oz we have a Goods and Services Tax that is collected by our Federal Government and distributed to the State Governments according to where the tax was collected.

It's a flat 10% sales tax on everything except food and other sundry items. This means that no one state has an advantage over another when it comes to sales tax.

Paul Mitchell said...

I know, I was just itching to be Mr. Smarty Pants.

Can't do that here if you are incorporated. If it is a sole proprietorship or a partnership, yes.

Paul Mitchell said...

In the United States, the federal government is supposed to have NO SAY AT ALL over anything that a single state does. That has changed drastically since the 1960s.

One Salient Oversight said...

It had to be approved by our States first. It theoretically could happen in the US if every single State legislature signed over its revenue collection to the Feds but I doubt that would be allowed to happen.

One Salient Oversight said...

I'm in no mood for an argument here, but can I ask what specific things were taken away from State control since the 1960s in your opinion?

Is this the idea that the Constitution only allows for the Feds to protect/keep safe and nothing else (what we "discussed" a while back)?

Paul Mitchell said...

I am not argumentative by nature, do understand that. I am forty four years old and grew up in a country where black folks had to ride on the back of the bus and have watched great strides in race relations, yet at the same time financial policies destroy the black community, so I take these things very personally.

I shall set that aside, since you ain't from around here.

The public school system has been taken over by the fed, to the detriment of the kids. Local school districts could do much better in establishing curriculum because they know what jobs are available in their area. Our kids get dumber every year because of feel good legislation that comes from Moonbats in areas that have more representation because they have more density. And those schools are the worst in our country. Take for instance the Chicago public schools. Dumbest people that you shall ever meet because they never learn to read, write or perform basic mathematics.

We now have food stamps, free federal healthcare for 45% of our population, NOT including the military, free federal housing for poor folks, I have pictures of the new housing on the Mississippi Gulf Coast that is STUPID in its wastefulness. The list of handouts is unrestrained. Remember, in the US, every poor family has two cars and four televisions.

We have federal restrictions on any type of religion in schools, we have federal restrictions on health education and reproductive education. Which I had back in the 1970s, but now all we have are a bunch of folks talking about wearing condoms and stupid stuff. The kids can use a condom, but they still have no clue what causes a pregnancy and if those kids get pregnant, they GET PAID.

OSO, you have no clue how close the US is to the European style of socialism that has destroyed their sovereignty. I hate it, and I shall NOT stand for it.

By the way, how did that gun control thing work out in Oceania?

One Salient Oversight said...

Why you up so late at night?

Actually the gun control thing worked out really well. Although we have stricter gun laws than the US, we still allow people to own rifles and pistols and some shotguns, but any automatic or semi-automatic weapons are banned ("if you want to fire assault rifles, join the army" said an army friend of mine).

Gun violence in Australia has declined but it is actually debatable as to whether this was due to stricter gun laws or due to a reduction in crime generally.

Ever since the Port Arthur Massacre, no one can be armed with rifles that fire 0.223 or 30-06.

There's still plenty of gun-related violence around, but it's at a lower rate than anywhere in the U.S.

One big difference in Oz is that our constitution doesn't have a second amendment equivalent. We haven't really needed to either since we evolved out of a glorified English prison rather than a revolution against the English.

There is a pro-gun lobby, but even before the 1996 Port Arthur Massacre not many Aussies owned guns anyway, so efforts to influence people and politics NRA-style never really worked. A couple of state politicians were elected on the issue of guns but that was about it.

There is a recognition, though, that farmers and people in remote areas need firearms as part of their job (putting down livestock, shooting roos) as well as for personal protection since the cops are just too damn far away. There's no real groundswell of opinion against handguns and rifles at the moment either - the majority seem quite happy with the current situation and neither pro-gun nor anti-gun lobby seems to be able to shift popular opinion.

One Salient Oversight said...

BTW - we haven't had a mass shooting since 1996. I think it's due to our stricter gun laws but we only have 20 million people her so such events wouldn't happen often anyway.

BLBeamer said...

My state (Washington) has no income tax but a state sales tax of 6.5% on nearly everything but groceries and prescription drugs (other exceptions, too, but those are the best known). Each county as well as municipalities also add onto the state sales tax. In my city we pay 8.8% sales tax. A neighboring city has a sales tax of around 9.5%. I don't know for sure because I avoid shopping there.

In addition to sales tax, we have pretty high property taxes and excise taxes on vehicles, boats, etc.

Our schools and colleges are funded primarily through two methods: a portion of property taxes and revenue from the state-owned timber lands. It's in our Constitution. We are a huge timber state so that has helped mitigate some of the funding problems other localities have suffered.

Our public schools are generally mediocre, but not for lack of funding (despite what the teachers union and administrators say). Our colleges are quite good.

BLBeamer said...

Regarding your study of income taxes, it is difficult to compare Australia and the US because just within the US each state is quite different particularly regarding income taxes. Seven states do not have income taxes, including mine.

In my case, I am in the 25% marginal bracket, but after deductions and exemptions and credits, I end up paying an effective rate of about 8.5%. I personally have no problem with the level of federal taxes I pay. But I don't want to pay more, and I do believe our corporate rates are too high.

Another problem with OSO's comparison is it doesn't seem to take into account the in kind and other "benefits" lower income folks get (including health care, despite what he seems to be implying). These also include food stamps, housing subsidies, tax credits, college tuition assistance, etc. The recipients are not taxed.

apodeictic said...

Well I see I've come to the party quite late. After reading your post I immediately thought "what about state income taxes?" but others have already made that point.

The way the tax system is structured in the US means that you can't give a single "bottom line" figure for income tax across the US. The bottom line on income tax will vary depending on which state you're in. But you could easily do it for those states without a state income tax and for all the other states as long as you were willing to do the extra work of calculating the state income tax contributions.

Of course income tax is not the only tax and even if income tax is lower in one place, the overall tax burden may still be higher depending on sales and property taxes (and obviously how much you how much you earn, spend and own!). Trying to come up with a bottom line figure on the overall tax burden will depend on a lot of variables which makes the task either very difficult or so qualified (making so many assumptions about the variables) as to be virtually worthless. Add to that other differences such as differences in purchasing power, social security coverage (not to mention differences in the wages and salaries) etc and the whole exercise gets very complicated indeed.

Australia also used to have varying rates of state income tax. But that era has long passed. Now the states get money from essentially three different sources: (1) sales tax (GST) which is generated in the state but collected by the feds and then passed back (supposedly in whole) to the states; (2) direct grants from the federal government (essentially a slice of the income tax pie) and (3) taxes and other sources of revenue they directly raise themselves. These include stamp duty (basically a tax on transferring ownership in land), fuel excise, land tax (a tax on owning land) etc which make up quite a small proportion of the states' total revenue.

Because of uniform rates of income tax and GST (sales tax) throughout Australia there isn't as much difference among the Australian states in the total tax burden. But there are still differences. Residents of New South Wales have the highest tax burden in Australia (and in return they get arguably the most incompetent state government!). If you're looking at investing in property you may be interested to know that the Northern Territory has no land tax (as opposed to all other states and the ACT).

Anonymous said...

WOW! This is some thread! I'm impressed with the civil exchange of information! Good job guys!

apodeictic said...

I have to say that the exercise OSO has engaged in is something in which I already have some experience. The internet makes it possible to get data on the tax systems of most developed countries (if not most countries). Having said that my motivation for my research has been largely personal. I'm currently coming to the end of my studies and am looking for a job. My job search is not limited to any one place so one thing I'm trying to get a feel for is how much tax I'd be paying and and what my purchasing power (including basic cost of living) would be in various places.

gooddog171 said...

As has been mentioned, this totally misses US State and City taxes. I lived in Manhattan from 2005-2008 and on top of the Federal rates you quoted, I paid 12% state tax and 4% NY city tax.

gooddog171 said...

As has been mentioned, this totally misses US State and City taxes. I lived in Manhattan from 2005-2008 and on top of the Federal rates you quoted, I paid 12% state tax and 4% NY city tax.

gooddog171 said...

As has been mentioned, this totally misses US State and City taxes. I lived in Manhattan from 2005-2008 and on top of the Federal rates you quoted, I paid 12% state tax and 4% NY city tax.

apodeictic said...

I just read in the French rag "Le Figaro" that the OECD has put out a study on the tax burden for average earnings in the OECD member countries. Here's the article (in French): http://is.gd/zumx

After reading this I visited the OECD website and found the original material (in English) which may be of interest:

In this study Australia ranks below the USA in the tax burden on average earnings (26.9% to 30.1%). Of course as all the foregoing discussion in this thread made clear there are lots of ifs and buts before you can get to a bottom line figure like this. But this is an interesting study nonetheless.

joecunsolo said...

The other major oversight in these calculations is that incomes earned in the US are required to pay Social Security @ 12.4% and Medicare @ 2.9%. So, add 15% to all the US tax rates and then compare.

Paul Mitchell said...

And do not forget your state unemployment insurance, either. OSO, I think when I actually calculate the total tax burden I have it winds up being about 230% of my income. Ha!

Unknown said...

What happened to Property taxes? SS taxes? State taxes? Health insurance premiums?
All of those are included those percantages that come out of Australians' paychecks....
check your facts buddy.
People making less than 300,000 pay much more taxes in usa vs australia.

World Citizen said...

Having moved from Canada to USA, I can tell you that it is difficult to get precise on these things. I have occasionally tried to make the comparison on income tax alone and find that it one still makes several assumptions to get as close to an "apples to apples" comparison. For instance, I find that Virginia to Ontario, Federal/State vs Federal/Provincial income taxes, I estimate a 15% - 22% difference...hard to nail down on precise deductions.

FICA in US vs CPP (pension) and UI (unemployment - now employment insurance) in Canada is slightly favorable to the US, last time I made the comparison.

Some states have zero state income tax (e.g. Texas), but have significantly higher property tax (as a percent of property value), however, it is near impossible to get this into an "apples to apples" comparison as it all depends on individual circumstance.

Canada has the GST that is added on top of the provincial sales tax. That takes away an additional 6,7,8% to nearly all your consumption (i.e. reduce your savings) from what is a close to comparable sales tax rate between most states and provinces.

Canada also levys higher taxes on a variety of items, notably gasoline, cigarettes, alchohol.

So, one can argue/debate on multiple single points, about which place is "cheaper", but one is left with "ballparking" it.

Three other factors have to be put into the comparison to really get it close to "apples to apples". 1. Pay scale. Personal experience has shown that pay scale in the IT industry is significantly higher in the US vs Canada. In 1997, one could get $1.10 USD for every $1.00 CAD in earnings. Consider that exchange rate was 1.35:1.0, that was like a 50% pay increase for the same work. I don't know how it compares currently. 2. Purchasing power is the USA is far greater than Canada - it is just that much more competitive - just compare electronics as an example, but remember it is home to Walmart, Target and many more retailers, so a smart shopper can do better in US. 3. On the plus side for Canada (at least in terms of price) is health care. It can be much lower in cost. Still, this is highly dependent on your situation how much difference this makes. For most educated people who have the opportunity to emigrate, the tax differences probably far outweigh the savings here, as employer coverage is still reasonable. Also, consider that you generally get what you pay for and if you have the choice you may find the advantages in the US offset (access, shorter lines, etc) the additional cost. Just trying to articulate the honest differences here vs make an editorial/ideological comment. 4. Job opportunities. The US is a far bigger, more diversified economy. That alone gives one more choices than in Canada. Canada's largest city barely breaks the top 10 in population of US cities (MSA). And, only six MSA's with more than 1M population.

Conclusion. As difficult as it is to "get scientific" about it, from experience, I can safely say that the move has been significantly beneficial financially. I think back to the struggles to eek out an extra percent return on investment here or there, yet just moving south has been an exponential return - think about the compounding on the additional incremental savings every year!

Unknown said...

The AUD$ is 0.40cents to 0.80 cents to USD$ so in the end if u make USD$95K per year its AUD$120K and AUD$80K per year becomes USD$40K-50K per year......

Australia/Canada is best place if you dont want to work and live for free. If you want to work then definitely you will earn more and then no medicare etc. In Australia, you need to buy private health insurance for AUD$50K per year or above income...

If you want to earn USD$40K per year as an "Engineer" why not work in China or other MiddleEastern countries where its tax free...

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Sheowahya said...

I think all of you have missed THE error here.

The original post calculated tax on income EARNED, neither country taxes on income earned, they both tax on TAXABLE INCOME.

In the US we are allowed to take deductions for private residence mortgage interest paid, property and school taxes paid on that same private residence, state taxes paid, and a myriad of other LARGE deductible items,

In Australia our deductions are limited to items related to expenses incurred in earning assess able income. These items are typically a small fraction (less than 10%) of earned income.

The tax as a percentage of US income is therefore GROSSLY overstated.

I understand the point that the author was trying to impress, but if s/he had taken into account the deductions allowed from earned income, you would find that the US resident pays a MUCH lower rate of tax than the OZ resident.

A US and OZ tax preparer.

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