In the US, there are four taxes that are deducted from an employee's gross wages, and four taxes that are paid by the employer in addition to gross wages, as follows:
This represents, more or less, payroll for someone at a full-time job, on minimum wage. Income tax withholding depends completely on what kind of tax deductions the person is eligible for, and roughly half of the people who file tax returns in the United States end up not paying any income tax at all.
Below, see a similar diagram for a monthly minimum wage salary in Romania:
The USD calculation is based on an exchange rate of 2.90 RON = 1 USD, which has been the average for the past few years. The first thing you'll notice is that a net minimum wage in Romania is only about $150/month. The second thing you'll notice is the appalling tax rates, especially the flat 16% of your gross income. And the total payroll expense to your employer is almost double what your net pay is.
[A side note about business owners: if you own a business, you generally put yourself on payroll, so you pay all the above taxes. Then you pay 16% of your net income every quarter. And then, you pay 16% of all your draws at the end of the year--double taxation!]
It seems to me that there are two defining factors in day to day household economics in Romania. First, the cost of labor is obviously extremely low. Second, most households own their own homes/apartments, and therefore have no monthly rent or mortgage payment. I've learned that for a typical low-income household with a single wage earner, at least 60% of the monthly budget goes to utilities, and the rest of the money goes to food, clothes, transportation, etc.
Comments, anyone?
What you're describing in your [parenthetical] remark is similar to a C corporation in the US.
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ReplyDelete(Sorry, I had to correct for issues I only found after posting.)
ReplyDeleteThat's pretty crazy, the amount of taxation I mean. How do people feel about their taxes, generally? I don't think people anywhere are really happy about all they pay, but do Romanians have a vague sense that they aren't getting all they pay for or is there consent, concerted effort to subvert the tax system because the feeling is that it's just going to corruption anyway? Somewhere in between?
Also, I'm guessing that the the rate of home ownership has something to do with the communist era. What about the next generation? Does housing remain so cheap that young people generally able to buy their own homes free and clear? rent? squat? live w/parents in perpetuity? Enquiringly minds want to know!
Denise, good questions. About taxes--here, they don't gripe about taxes because I think most people don't really have a good idea of what their "gross" pay is, or they don't pay attention. The net amount is the only number that counts, so they ignore the rest. The griping is more about the fact that wages are dropping while prices are continuing to rise.
ReplyDeleteI don't know a lot about the home ownership issue--it never occurred to me to ask before now. I'm sure you're right about the communist era, but I don't know much about the next generation's credit situation. People generally live with their parents a lot longer, even after they get married sometimes, which explains part of it. And there are mortgage ads all over town, so I'm sure there's plenty of that, too.