In Saturday’s New York Times, pro golfer Phil Mickelson complained about his high marginal tax rates.
“If you add up all the federal and you look at the disability and the unemployment and the Social Security and state, my tax rate is 62, 63 percent,” Mickelson said. “So I’ve got to make some decisions on what to do.”
My first reaction is that Phil should talk to his accountant because his effective tax rate is surely lower than 60 percent. The fiscal cliff deal raised his marginal income tax rate to 39.6% (assuming he’s in the top bracket). The phase-out of itemized deductions will add about 1.2% and he will also have to pay a combined Medicare tax rate of 3.8% (the regular 2.9% for self-employed people plus the new 0.9% surtax enacted to help finance the Affordable Care Act). According to the New York Times article, Mickelson will also owe 13.3% in California state income taxes because he’s in the new millionaire bracket. That adds up to 57.9%, but state income taxes and 1.45% of the payroll tax are deductible from federal income tax, so that reduces their net cost by 5.8% (39.6% of 14.75%). In net, Mickelson will owe about 52% of his marginal earning in federal and state taxes.