Phil Mickelson, who made about $48 million last year, recently stated that he will be making some “drastic changes” in response to increased taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates at the federal and state level:
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 rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. 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 @EconoWillShare