@Cycloptichorn,
Cycloptichorn wrote:
Wait, George. If you can deduct state taxes paid on your federal income taxes, you're not paying 39% on them, are you? You're paying 39% minus the deduction for state taxes paid. It's not 49.5% in the first place, it's less than that. The two are not directly additive - you are reporting this incorrectly.
... I just looked it up on the IRS site and it seems to confirm what I just said - the state tax deduction lowers your effective federal tax rate.
You're probably getting confused by the fact that you can't deduct State and local taxes AND take the 'standard deduction.' For most people, the standard deduction is slightly higher than taxes paid, even in states like CA who have high local sales tax.
You probably should have looked some of this stuff up before posting. Is this something you do?
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Who does your taxes???
I do my own taxes, and deducted my state taxes paid from my federal taxes owed, which reduced my liability. Who does YOUR taxes?
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Cyclo's self proclaimed factual obsessions don't appear evident in his slavish applause to this nonsense.
Priceless comment now, wouldn't you agree? Priceless.
Cycloptichorn
Perhaps I should spell this our slowly and in big letters. We're talking about a hypothetical millionaire in California and the effect an increase in the federal marginal rate from 39% to 70% would have on him, and any incentive it might create for him to change his residence.
The fact is that this change doesn't affect his state income tax liability at all. Moreover if he is a millionaire and already paying at the top Federal bracket, his Federal tax bracket won't change , with or without the state tax deduction. We are also talking about the marginal taxes he pays on the vast majority of his income above the next lowest tax bracket (below about $379K) , so the state deduction has only a very small effect on the overall rate. Given that he makes over a million,, the marginal tax rates apply to at least $600K) of his income, and state tax deduction is the same in both instances.
Thus in the hypothetical situation we ware addressing, our millionaire, if he made exactly $1 million/year, would see his marginal tax rate go from 49.5% to 80.5 % on approximately the last $600K of his income - a difference of $186K, or 18.6 % of his total income. Assuming the lower brackets were raised proportionally the increase would be even larger, probably at least $30K, even if the increased rate affected only the second highest bracket.
I doubt that there are any millionaires who take the standard deductuon, and this too doesn't apply to the taxes rates applied to the great majority of our hypothetical millionaire's income.
More to the point this change would reduce his after tax income from about $550K to about $270K - a 49% drop !!!!
The only priceless element of this dialogue is your foolish stupidity in lurching in to this nonsense without thinking, and doing so in the face of similar errors made by parados and cicerone. Doubling down on a stupid bet is doubly stupid.
Those who would reform the tax code for us all should exhibit a bit more proficiency at elementary algebra than you folks do.
Again, thinking is apparently a great deal more difficult for some than surfing the web.
