When considering a lower tax rate we can make one of two assumptions. We can assume that changes to taxes rate will not change behavior, or we can assume that changes to tax rates do change behavior.
We know that...
I'll probably go into it more next year or next week. But if you add up, if you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63 percent. So I've got to make some decisions on what I'm going to do.
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.
In any case, paying more than half of one’s income in taxes goes well beyond what most people consider to be “fair”.
Follow William McBride on Twitter @EconoWill
Join the Tax Foundation's fight for sound tax policy Go
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
We know that...
29 Democratic members of Congress from California today urged California to make its film tax credit more generous. A bill to do so, AB 1839, has passed the state Assembly and is pending in the Senate.