Comments on: What Is Your Marginal Tax Rate?

By: PatentGuy

PatentGuy — Mon, 04 Jan 2010 00:23:23 +0000

JTP:

I agree it’s hard to understand why any billionaire would “work” – but I imagine the ones that do are “the man” at “work” and it is simply not comparable to what most of us view as working.

Regarding tax policy. Yep – the US taxes labor/wages; not capital gains. Even Obama seems reluctant to tax capital gains (”investment”) at the same rate that income is taxed. That debate (like the debate over how much to tax everything and anything) is ongoing …. The government is getting huge and it is past the point of ever shrinking. Americans (and others world wide) love their entitlements and conflate entitlements as “rights” like free speech.

By: JoeTaxpayer

JoeTaxpayer — Mon, 04 Jan 2010 00:15:56 +0000

I meant it more in the sense that a billion dollars can easily fund a $20M/yr lifestyle, the marginal worth of money at that point is already minimal. Marginal tax rates mean far less to such a person than to you or me. I do understand, though, that these people actually drop in terms of tax bracket. There’s irony for ya.

By: PatentGuy

PatentGuy — Sun, 03 Jan 2010 23:46:52 +0000

TFB,

It’s easy to say you will draw the line at 50%, but until it happens, you don’t really know. For example, I can easily see Team Obama combined with California pushing the combined rate into the low 50% within a few more years. I guess we will find out.

I thought I had posted an earlier reply to JTP regarding “billionaires”, but apparently. I did not hit “submit”. The gist was: I am not a billionaire (Im short about $995M in assets …). But, I suspect most billionaires have much lower marginal tax rates than I do, because they make their billions through long term capital gains; not income. For now, the LTCG Fed rate is 15%. No Medicare tax; No SocSec Tax. I also suspect many billionaires are smart enough to locate themselves in a state that has no income tax (Bill Gates in Washington comes to mind), so the sate cap gains rate does not matter.

Thanks for a great blog.

By: TFB

TFB — Sun, 03 Jan 2010 23:23:12 +0000

PatentGuy – I draw the line at 50%. If I can keep 50% of what I earn, I’m working and paying taxes. If I get less than 50%, I’m really working for the taxman. The problem is it’s hard to stop at the marginal dollars, although it’s somewhat easier if you are self-employed. For people who work for an employer, working 75% of capacity is usually not an option.

By: JoeTaxpayer

JoeTaxpayer — Sun, 03 Jan 2010 14:07:59 +0000

PG -
Interesting question. I suppose it depends how much one is making, or has.
I often wonder why a billionaire chooses to keep working, taking time away from family and other activities. Then I realize, some of these guys are in it for the action. Their work is everything regardless of the income. You raise a good point, and as you know, Laffer is a chart with only two fixed points…..

By: PatentGuy

PatentGuy — Sun, 03 Jan 2010 07:08:57 +0000

I live in Cailfornia and I am “successful” (because I work constantly) self employed. In addition to the Fed rate of 35% (for one more year, anyway) our marginal state tax rate is 10.55%, but this is deductible from fed at the marginal dollar, so net is 10.55% * .65 = just under 7%. Then, there is medicare, 2.9%, of which half is deductible, for about 2.2% net. So, I have a marginal rate of just over 44%.

This will go to 48.5% when Bush brackets expire in 2011, and I assume go over 50% once the health care taxes or other self employment taxes such as FICA are raised, as promised by team Obama.

At some point, the Laffer curve kicks in. It’s easy to say you won’t work if your marginal tax rate is 95% – who would? But how about at 50%? Would you?

I am stuck in California for family reasons (and it is a nice place to live for the most part), but the irony is that I could probably do just as well, business-wise, in a nearby no income tax state like Nevada or Washington.

By: Finance girl

Finance girl — Mon, 30 Nov 2009 04:32:18 +0000

28% federal, 0 state tax (wa state has none), and 9.8% sales tax.

By: Chuck

Chuck — Wed, 25 Nov 2009 21:30:56 +0000

Just did the calculation. My federal marginal rate is 30%, even though I’m in the 25% tax bracket. Why? Because I have 3 kids, and I’m in the child tax credit phaseout zone. I was surprised by this fact.

That makes rolling into the 32.5% effective AMT bracket less of a concern than I thought it was. So, I suppose there’s looking at the bright side…

By: Financial Samurai

Financial Samurai — Mon, 23 Nov 2009 23:13:19 +0000

My marginal tax rate is 35%, and when Bush's tax policy expires in 2011, it's likely going to 40% federal. DEPRESSING! It's all about a FLAT TAX!

By: Don

Don — Mon, 23 Nov 2009 20:15:32 +0000

Nominally, for me the major (marginal) taxes are 15% federal tax, 6% state tax, and 7.65% for my half of social security and medicare tax.

This understates things because I’m near the cutoff for the retirement savers credit, and that phase-out effectively pushes my marginal rate up; technically it is 4 million percent on the first penny over the cutoff, but I suppose that’s being a bit silly. Say perhaps that it is another 4% to my marginal rate and decreasing as my income goes up, leaving that boundary behind me.

It is worth noting that some of my marginal rates were substantially higher “along the way.” I have one block of income on which my marginal federal rate is 27.75%. I have another block of income on which my marginal federal rate is 22.5%. Each of those regions enjoys a higher marginal state tax rate for my wife as well.