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January 21, 2010


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There they go again - it's Bush's fault!

"But after 2010, counting all the tax changes, top marginal tax rates may rise from 44.6% to 62.4%."

This is the 2nd time I think we've seen this blog citing a future 62% tax rate. So I'll ask a 2nd time: Where does that number come from?

Top marginal rate in 2011 will be 39.6%.


I thought the title was a bit misleading:-) 2010 isn't the "last chance for segregated Roth conversions," since segregated Roth conversions will be allowed in future years, unless I misread the tax code. However, 2010 will probably the "last year before our taxes go up," even if one makes under $250,000 :-)

Imagine that, the current political machine has no plans whatsoever to renew these tax cuts. You know, I'm not a real big political guru, but I'm going to predict that when these tax cuts expire we will barely hear a whisper about it on the major news networks. If it wasn't for Rush Limbaugh I would have never heard about them expiring before I read this post.

Jim --

You realize this is a guest post, right?

I've sent a note to Marotta asking him your question. If he responds, I'll post it back here.

Here's the response from Marotta:

The top federal rate is at 35% rising to 39.6%, but that is just the federal rate.

In addition to raising the top marginal rate from 35% to 39.6%, part of the proposed tax increase raises the cap on Social Security taxes. About a third of those affected by raising the cap would be small business owners.

In two Wall Street Journal editorials, Michael Boskin found these proposals would raise the marginal tax rate from 44.6% to 62.4%.

The current top margin rate is about 44.6% and includes federal, phase outs of personal exemptions and certain itemized deductions, and the extension of Medicare, Social Security taxes on all wages. There are also additional tax increases proposed for the top marginal rate in the current health care bill passed by both houses but now in reconciliation. The number doesn't include those, but does factor in a state tax.

Here are a couple of references from Michael Boskin (Stanford Economics): (62.3%) (62.8%)

In a separate issue, the capital gains rate (currently at 15%) will rise to 25% at the top bracket.

I know this is a guest post but this is your blog and you are responsible for the content on your blog. Plus I don't see Marotta coming here to talk to us.

There is no current law to raise rates to 62%. Period. There isn't even a bill in progress to do such a thing.

62% comes from combination of existing law due for 2011, California taxes and some "proposed" tax changes.
Its a contrived political argument.

Do you live in California? I don't live in California. Why are we talking about the tax rates in California as if it applied to everyone? Why not go one state over and talk about Nevada where there is no state income tax? Maybe Marotta lives in CA and wrote this article with a CA audience in mind? If so it should be modified to apply to everyone or noted that the #'s are specific to CA.

The components of 62% are:

39.6% federal income tax (due for 2011)
10.3% California top tax rate (specific to just CA)0
2.9% meddicare tax (current)
"proposed" 1.2% phase out of deductions
"proposed" 12.4% social security tax

So if you don't add in California taxes and you don't add in increases that were merely or talked about at some point in the past then the actual rate is 42%.

That proposed social security increase is based on what Obama talked about at one point or another on the campaign trail and nothing more. In fact according to that first source from the Stanford article Obama has since changed what he proposes from extending the full 12.4% social security rate to instead just 2-4% increase. But still that is just talk and the president doesn't unilaterally change tax law.

I would ask that when someone uses numbers like this that that they simply clearly explain what the numbers are from. Otherwise people will get confused or jump to conclusions based on the context. Or better yet why not leave such bogus numbers out of such an article altogether.

Jim --

Notice he says "top" marginal tax rates and qualifies it with "may". But we're bickering over minor points in the piece aren't we?

Do you dispute that taxes are going up? It appears that you concede that point -- it's just that you think they are over-stated.

So do you disagree with the Roth IRA advice he's giving (the main point of the post) or not? I can't tell.


I never said taxes aren't going up. Federal top marginal tax rate is set to go up 4.6% if the current law expires as written. That much is truth. My point is that the 17.8% increase and 62% top rate claimed in this article is bogus fiction.

4.6% versus 17.8% is not a "minor" point or just "overstated" in my mind. Would anyone call a 13.2% tax increase "minor"? I really don't think its nitpicky to point out that 4.6% isn't 17.8%. If the governor of Michigan said unemployment in Detroit was 4.6% when you knew it was 17.8% would you take that in stride without question or argument?

I sincerely do not want to be belligerent about this and I don't mean to cause a giant debate about it. If I'm coming across as angry or accusational then I am sorry, I might get worked up about this kind of thing cause it irks me a bit. I've spoken my mind and made my point so I'll stop now and shut up.

I do appreciate you responding and clarifying the point of where the figures come from. Thanks.

Jim --


I assume you'll be taking Marotta off your Christmas list. ;-)

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