From the Tax Foundation:
Mickelson lives outside of San Diego so he is subject to one of the highest tax rates in the country, but it doesn’t appear to be quite that high. Gerald Prante and Austin John total up all the top tax rates on wage income in the 50 states and they do find California has the highest at 51.9 percent:
"For example, the 51.9% top METR [marginal effective tax rate] for wage income in California for 2013 under the Fiscal Cliff scenario is equal to the 39.6% federal income tax rate plus the new 13.3% top state income tax rate in California minus the deductibility of state taxes against one’s federal taxes (5.27%) plus the marginal tax rate effect of Pease returning (1.18%) plus the current 1.45% Medicare employee tax plus the new 0.9% tax on Medicare plus the current 1.45% Medicare employer tax which we assume is borne by workers in the form of reduced after-tax wages. The sum of these tax rates, which equals 52.6%, is then divided by 1.0145 (1 + Medicare employer tax) because by assuming that the incidence of the Medicare employer tax is borne by workers, we must add back the employer contribution to the worker’s income. The final METR figure is thereby 51.9%."
It’s not clear how Mickelson is getting to 62 percent, since there is no other income tax at the local level in or around San Diego.
I think he's including state sales tax on his estimated tax incidence.
ReplyDeleteHe's probably including the property tax in his accounting.
ReplyDeleteI still think the rate that you figure (the marginal effective rate) is the wrong one. The effective tax rate on total income seems like the most honest way to represent the tax percentage. Since Mickelson is paying less than 39.6 percent on his income below $450 thousand, and less than 12 percent on the income below the CA top margin, and since he may have the option of receiving his income as dividend payments taxed at 15 percent, we cannot figure his effective rate without knowing both his total income and, and its division between wages and capital returns. The question gets even more complicated if we try to include property tax, since in CA that depends on his house's listed assessment value.