Do the math: 55% taxes loom for $300K-plus earners in California

Nov. 25, 2012

By Chris Reed

Matt Miller, a quirky and interesting writer-thinker for a lefty think tank (the Center for American Progress), has a warning for Gov. Jerry Brown. Writing in the Washington Post, Miller does the math and concludes that Proposition 30, combined with other factors, is going to take a heavy, European-style toll on California’s wealthy:

[W]hile Prop 30’s passage saves schools from devastating cuts for the time being, Brown has planted the seeds of future trouble. Follow the numbers: let’s say federal tax rates on top earners go back to 39.6 percent from 35 percent. Add in Obamacare’s new 3.8 percent tax on investment income and new 1 percent higher Medicare payroll tax on the same folks. Then toss in new top state rates of 11.3 to 13.3 percent (up from 9.3 and 10.3), and presto! Marginal tax rates for self-employed people in California earning $300,000 and up (who pick up both “sides” of the payroll tax on a chunk of their earnings) could reach 55 percent or more.

Read the whole thing here. Miller’s larger point — that taxes need to go up to pay for the government the public says it wants, but that tax hikes on the rich alone can’t generate nearly the money that Brown and President Obama contend — may not be one that libertarians or conservatives will like. But it has a defensible sanity to it.

Unlike, yunno, The New York Times’ economist/columnist/lunatic Paul Krugman, who wouldn’t mind a 91 percent tax on the rich. Really. Victor Davis Hanson nicely details Krugman’s derangement here.


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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 November, 2012, 11:15

    91%???? Didn’t the Beatles renounce their citizenship over that tax rate????

    Reply this comment
  2. jimmydeeoc
    jimmydeeoc 25 November, 2012, 11:39

    Victor Davis Hanson should run for office. He won’t, and I understand why he won’t, but I can still dream.

    Reply this comment
  3. Douglas
    Douglas 25 November, 2012, 13:37

    California taxes. Your mileage may vary. 

    “In 2009, according to Internal Revenue Service studies, six of the 400 U.S. tax filers with the highest adjusted gross income (meaning AGI of at least $77 million) paid no U.S. income tax”

    If they paid no federal income tax, how much state tax do you think they paid?

    “19,551 U.S. households with income above $200,000 owed no U.S. or foreign income tax.”

    How much state income tax did they pay?

    “Marginal tax rates for self-employed people in California earning $300,000 and up ‘could’ reach 55 percent or more.”………….is like saying state workers ‘can’ retire at age 50 with 90% of their salary.  It is POSSIBLE, for some classes, but in reality only applies to about one percent of retirees. 

    And what is the effective tax for Californians?

    In California, it actually seems to be fairly evenly distributed among the various income levels.  Although higher  income earners on average pay slightly lower effective taxes (8%) than lower income groups (10%)

    Compare that to Texas, (one of the ten most regressive states) where the top 1% pay only a 3% effective state plus local tax, while the lowest 20% have an effective rate of over 12% of income. 

    A blanket statement like “Marginal rates could reach 55%” is virtually meaningless, except for shock value. 

    “Do the math!”

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 November, 2012, 14:00

    Dougie you posted your copy and paste propaganda before here, stop repeating it.

    Reply this comment
  5. Bob Smith
    Bob Smith 25 November, 2012, 22:11

    “91%???? Didn’t the Beatles renounce their citizenship over that tax rate????”

    They simply moved abroad to escape taxation, since England had a territorial tax system at the time. The US, on the other hand, claims tax authority over any American citizen no matter where they reside, and will confiscate your US assets if they believe your renunciation is motivated by tax avoidance.

    Reply this comment
  6. Hondo
    Hondo 26 November, 2012, 11:12

    ” Planted the seeds for future trouble”?
    I don’t think they will have to wait very long for ‘ Trouble’. I predict that next years budget will be in deficit. Just like Illinois and Connecticut’s were the year after huge tax increases ( and lets not forget the 09 Kali tax increase. Did that solve anything?)
    Douglas. You have all the numbers. Prove me wrong about Illinois and Connecticut and the 09 Kali tax increases. You are very literate in your presentation of misleading a facts. Mislead me and see if I fall for it.

    Reply this comment
  7. Douglas
    Douglas 26 November, 2012, 13:56

    Let the Cato Institute do it.

    Check out their video on the Laffer Curve.

    Daniel Mitchell:
    “One of my frustrating missions in life is to educate policy makers on the Laffer Curve.

    This means teaching folks on the left that tax policy affects incentives to earn and report taxable income.”
    …..” If you double tax rates, for instance, you won’t double tax revenue.”

    “BUT……it also means teaching folks on the right that it is wildly wrong to claim that “all tax cuts pay for themselves” or that “tax increases always mean less revenue.”

    Ceteris paribus: If tax increases were the ONLY factor being changed in Illinois or Connecticut, or California, you might have a point. But when is that ever the case?

    Notice Mr. Mitchell doesn’t say it is “wrong” to assume that tax increases always mean less revenue.

    He says it is WILDLY WRONG.
    My point in this post, however, has nothing to do with the effect the tax increases will have on the budget, or on the California economy. My point is that:

    “55% taxes loom for $300K-plus earners in California”

    is BOGUS! I seriously doubt if ANYONE in California will pay 55% marginal tax rates.

    It’s just sensationalism.

    The purpose of the link: the top 1 percent of California pay an effective rate of 7.4% for state and local taxes. That’s ALL state and local taxes. For California income tax, the effective rate is 5.2%, after the federal deduction offset.

    Reply this comment
  8. Douglas
    Douglas 26 November, 2012, 13:57

    Why would I want to mislead ANYONE?

    Reply this comment
  9. Richard Rider
    Richard Rider 26 November, 2012, 17:04

    Krugman’s 91% income tax on the rich is the FEDERAL income tax. The rich in CA ALSO now pay a 13.3% STATE income tax (presumably not deductible, according to Krugman).

    Gee, that comes to a tax PENALTY for making money — a fine OVER AND ABOVE taking 100% of rich people’s earnings.

    And I’ll assume it goes without saying that Krugman supports the confiscatory 55% or highest ESTATE tax rates kicking in next year.

    And this fellow is still the darling of the liberal media because . . . ?

    Reply this comment
  10. Richard Rider
    Richard Rider 26 November, 2012, 17:10

    Douglas, the deduction for state income taxes often fades away for the wealthy because of the Alternative Minimum Tax (AMT). But then, I bet you knew that.

    And your stats come from a bogus liberal study. For instance, it fails to count the income received by low income folks (EITC, CA tax exemption credits, and other direct subsidies — including food stamps). Poor people may pay some money into the tax system, but they do NOT pay ANY net taxes after the cash and equivalent subsidies they receive.

    But then, I bet you knew that.

    Reply this comment
  11. CalWatchdog
    CalWatchdog Author 26 November, 2012, 18:03

    Douglas: You cited both marginal and effective rates, then mixed them up. “Effective” includes the rate paid on lower levels of income. For example, the wealthy pay lower taxes on their first $50,000 of income.

    But the *marginal* rate is the most important one because it taxes every *added* dollar made. And it really will be 55% in California for those making enough. It can be avoided by not working any more, or by leaving the state or country.

    — John Seiler

    Reply this comment
  12. Rex the Wonder Dog!
    Rex the Wonder Dog! 26 November, 2012, 18:50

    Dougie is nothing but spin……

    Reply this comment
  13. Douglas
    Douglas 26 November, 2012, 19:17

    No, I have never qualified for AMT, and I don’t have data on how many Californians it affects, or how much. 

    I also have never qualified for EITC. 

    I understand the difference between marginal and effective tax rates. (I know a reasonable person understands, yet I claim the very title of this piece IMPLIES a 55% effective tax rate: misleading and sensationalistic)  effective and marginal rates are ambiguous throughout the article, such as Mr. Miller’s statement : 

    “Marginal tax rates for self-employed people in California earning $300,000 and up (who pick up both “sides” of the payroll tax on a chunk of their earnings) could reach 55 percent or more.”

    That “chunk” does affect their effective tax, but no longer affects the marginal rate. 

    California and federal taxes are very complex. Depending on source of income  and other factors, any two persons with identical incomes could have wildly different tax liabilities, whether in the lowest 20% or in the highest 1%. 

    Those who earn over $300K are likely either astute enough or wealthy enough to hire someone to keep them out of the 55% total marginal bracket. 

    I still maintain that VERY few, if any, will pay that much. 

    If 19,000 US households with income over $200,000 pay NO income tax, how difficult is it to stay below the maximum marginal bracket?

    Reply this comment
  14. Ted
    Ted "Eddy Baby" Steele, Associate Prof. 26 November, 2012, 20:01

    Rex the Poodle— always wrong…

    so far?

    0 for 14 ™!

    Reply this comment
  15. david kerr
    david kerr 27 November, 2012, 05:22

    Fortunately, practice management consultants can help doctors adjust to the new rates. See fewer medicaid patients. Do more EKGs. Pathologists can do more special stains. See a patient twice a year who needs to be seen once a year.
    Cutback on office staff. Keep income in the corporation instead of taking it.
    Structure the sale of your practice as an installment paid over several years.
    Close your practice and move it to Arizona.

    Reply this comment

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