À AIMER: Getting Sick, Part Three

Last weekend, inspired by some very good points and questions from readers, I went down the tax rabbit hole and into the very confusing world of French impôts, where everything is topsy-turvy — about as upside down, or right-side up, as things are in the American tax world.  In some aspects, the two systems are quite similar; in other aspects, they are completely different.  But it all boils down to this: one system is more expensive for taxpayers yet offers generous health, education, retirement, and welfare benefits.  The other system is less expensive but offers its taxpayers little sécurité.

The question today, though, is: how much more expensive?

I attempted to find the answer in Part Two of Getting Sick, but I lacked some very important information: one, that both American and French income taxes are calculated on graduated scales so that portions of income fall into different tax brackets.  Two, that the French are also subject to a host of social taxes that are taken directly from their gross (brut) earnings; they pay their income taxes on their net earnings. Three, that Americans also pay social taxes — the U.S. government takes a portion of gross earnings for Social Security and Medicare.

Both systems allow for myriad deductions — everything from credit back for taxes paid to credits for purchasing clean-energy cars and employing domestic workers.  Taxpayers in both countries try to claim as many deductions as they can (and even some that they can't) in order to reduce their taxation.

So, without further ado, let's look at what the French pay, and what Americans pay.  (Okay, a few more "ados" — my calculations are based on the most recent tax tables from both countries, plus the most recent tax tables for California.  I have applied the graduated scales, and also Social Security and Medicare for Americans and all of "les charges sociales" for the French.  No extra deductions, such as dependents or union fees, were applied.  For those who would like to double-check my numbers, my sources are listed at the bottom of this post.)

And now, finally, voilà:

A single American earning $25,000 a year and living in California pays:

$3,332.50 in Federal taxes

+ $588 in State taxes

+ $1912.50 to Social Security and Medicare

for a total of $5,833 or just over 23% of his income in taxes.

A single French citizen earning €25,000 pays:

€5,250 in "charges sociales" (social charges)

+ €1,174 in income taxes

for a total of €6,424 or nearly 26% of his income in taxes.  

(Note: French social charges are about 21% of the gross income.  A 10% credit is then deducted from the net earnings to arrive at the amount owed in income taxes.)

Moving on, 

A single American earning $90,000 a year and living in California pays:

$18,920 in Federal taxes

+ $6,066 in State taxes

+ $6,885 to Social Security and Medicare

for a total of $31,871 or just over 35% of her income in taxes.

A single Française earning €90,000 pays:

€18,900 in "charges sociales" (social charges)

+ €13,168 in income taxes

for a total of €32,068 or nearly 36% of her income in taxes.

And finally,

An American couple earning $50,000 each, filing jointly, and living in California will pay:

$17,375 in Federal taxes

+ $4,689 in State taxes

+ $7,650 to Social Security and Medicare

for a total of $29,714 or nearly 30% of their combined annual incomes in taxes.

A French couple earning €50,000 each and filing together will pay:

€21,000 in "charges sociales" (€10,500 each in social charges)

+ €10,406 in income taxes

for a total of €31,406 or over 31% of their combined annual income in taxes.

So,the French system is only slightly more expensive for its taxpayers, and they get more out of it.  What exactly do they get out of it, compared to what Americans get?  Stay tuned for Part Four . . . 

SOURCES

The Internal Revenue Service

The French Government Fiscal Administration site (in French, but with a detailed tax calculator).

State of California Franchise Tax Board (also with a tax calculator).

Le Money Mag (in French)

Dixon Wilson Chartered Accounting

Comments

[Brent]

I think this comparison is useful for conversational calculations, but it's hard to do an apples-to-apples comparison without more inputs, including VAT and other taxes. I ran across one posting (on a web bulletin board) in which a Canadian living in California tried to compare his tax situation at home with his new one. Ultimately, he said direct comparisons were very difficult, but on balance he felt the move provided him a net benefit. The wage was higher, the prices of consumer items were significantly cheaper, and these two offset fully any extra cost of health insurance. Still, it's hard to draw a conclusion from anecdotes...

You might also look at the OECD's tax stats for more:

1) Entry page

http://www.oecd.org/document/60/0,3343,en_2649_34533_1942460_1_1_1_1,00.html

2) Spreadsheet including the "total tax wedge" for various countries (France, up to 63.2%; the U.S., up to 43.7%)

http://www.oecd.org/dataoecd/44/2/1942506.xls

[Dan Dx]

@Brent
What do you get in return of your 43.7% taxes?

[Brent]

@Dan:

I'm not defending the U.S. system, nor saying that the return on my taxes are particularly rewarding. A good part of my tax dollar goes towards programs -- like defense and some welfare programs -- that I think should be scaled back dramatically. Defense is among the largest parts of our budget, and the money that goes towards it takes away from domestic spending that could make my life quite a bit more comfortable. For example, I'd like a decent high speed train network; the money we've spent in Iraq probably could have built out a good part of one nationwide.

In any case, the point I'm trying to make is much smaller, that income tax rates do not completely explain the total tax burden. If the OECD numbers are correct, the French pay 20 percent more in total taxes than Americans. If I paid 20 percent more, I would expect to have a fantastic health system, along with free higher education and the like.

I tend to support health care reform efforts. Still, it is perhaps ironic that the current proposals could cost me a good deal more than what I have now. Too, it's not clear to me that I stand to benefit from reform overall, other than changes to contractual issues such as removing the ability of insurers to rescind a policy.

[Tim Jones]

The other item left out of the cost calculations is that you are shifting the cost of insurance from a payroll deduction that goes to insurance to a tax that goes to the government. So, for example, I will pay $280 per month next year in health insurance premiums. The percentage of income would vary, if I made $25,000, that would add 13.4% to my "tax bill"; if I made $90K, it would add only 3.7%.