If the job remains exactly the same -- same duties, same responsibilities, same hours -- then accepting the raise is *exactly* like accepting a winning lottery ticket in the amount of the raise or bonus! Of course it makes no sense to turn it down when you don't have to work longer or harder to get the extra money -- regardless of the tax rate on that windfall.The decision is easy for a job that you aren't going to like. But would you ever turn down a raise where your job stays completely the same because of tax reasons?
I agree about mortgage interest deduction. Want a housing bubble? Among other strategies, it always helps to make mortgage interest deductible. But realtors and the mortgage industry are big political contributors, and that is all that matters.Not hard to see why your gov't can't balance its budget. Much fewer deductions allowed in Canada. I paid about 30% combined fed/provincial tax in 2008. This would not be atypical I think.
In other words, I'm not willing to work a lot harder when a majority or very large minority of my additional earnings will be confiscated by the taxmen.
This is very interesting. I read a tax study recently that said the US gets a higher percentage of its tax revenue from wealthy individuals than most other OECD countries.
I'll gladly accept $10,000 in "free money" that's taxed at 50%. I'm much less likely to work longer hours for an extra $10,000 that's taxed at 50%.
You are welcome. According to de gubbermint i don't work for a living - all that rental income is unearned income. Means i don't pay into social security, which is cool, but also means i will collect pocket change for SS at some point. Also means no IRA. The interest income is taxed at regular income rates. We are kid-free and unmarried. Last year I spent 17.1% of my AGI on Federal taxes and 7.4% of AGI on state taxes. At least we don't have sales tax here, but property tax on our home cost a couple percentage points of AGI. So maybe 26.5% of my AGI goes to providing infrastructure, police and fire protection, offering cash inducements to Afghan poppy farmers, and as much government as i can stand or afford.
Maybe the lesson here is that I should have more cash in stocks busily increasing in value but not throwing off profit. If convinced that stocks made more money i guess i would... Just too chicken to count on Mr. Market to provide for me.
agree. When I was younger and trying to increase my net worth, I always thought the lower taxes in the US would be great. Now that I have "overcome" Canada's high tax environment (at least to some extent), I have changed my thinking. Canada's more generous social safety net encourages a more egalitarian society I think. This in turn encourages less crime and probably improves quality of life given a set level of wealth. So in summary-earn it in the US and spend it in Canada.Greater income inequality in the US also plays a part.
^
The decision is easy for a job that you aren't going to like. But would you ever turn down a raise where your job stays completely the same because of tax reasons?
Remember that income subject to SS taxes is capped at $106,800. So you're really looking at more like a ~32% marginal rate.
The tax system does not encourage productivity. My effective tax rate is 34.6% and my marginal tax rate is 43.5%. The benefits of work (e.g., money) are being overshadowed by the costs (e.g., stress). This encourages me to early retire.
I doubt you'd feel differently if your marginal rate was 33% or 23%. What I suspect you're really feeling is the diminishing marginal utility of money. People are very motivated to earn their first $20K because they're worried about things like food and shelter. After their 5th $20K they have the luxury to start worrying about trade offs like "stress". At some point, for some of us at least, more money isn't worth the time it takes to earn it. There isn't a marginal rate low enough to fix that for most of the people on this forum.
33.45%.
Really, a few years ago, here in Canuckistan, my marginal rate was 52%. Now, the top rate, is down to about 43%. YAHOO!
Since my income is from investments, I can't choose to work less (or can I work fewer than zero hours per year?)
... Much fewer deductions allowed in Canada. I paid about 30% combined fed/provincial tax in 2008. This would not be atypical I think.
Have some kids late in life.What's a poor retiree to do?
Based on a tax return I recently came across, I remembered this thread and decided to play with some numbers. For a single retiree over 65 years old, a typical tax scenario for Federal taxes in a "simple" traditional IRA-withdrawal case might be along the following lines...
$12k/year Social Security, $20k/year traditional IRA withdrawal, no other income.
Results: taxable social security income: $500
AGI: $20500 (20k IRA withdrawal + taxable social security income above)
Standard deduction $7100 + additional deduction $3650
Taxable Income: $9750
Federal taxes: $1045
Effective federal tax rate: $1045 / $32000 ~ 3.3%
The (effective) tax rate is of course quite a bit larger than what FUEGO pays at over $100k income...
Question: what's their marginal rate? If you guessed 15%, you are actually wrong...
For every additional dollar of income, $0.50 more of social security is taxed, so real marginal rate is 22.5%
If retiree wanted to stay in 10%-bracket, i.e. to ensure that both bracket is smaller and none of Social Security benefits are taxed, they could withdraw maximum of $19,000 in above scenario, resulting in
AGI: 19000 (19000 + 0 taxable social security)
...
Federal taxes: $825
Effective federal tax rate of $825 / $31000 ~ 2.7%
Marginal federal tax rate: 10%
Effective tax rate is still quite a bit larger than OP...
What's a poor retiree to do?
With such a low AGI, most of your health care costs would be deductible. Once you add your medicare premiums, supplemental insurance premiums, medicare part D premiums, qualified long term care insurance premiums, medical co-pays, and medical mileage to your property taxes and a few charitable contributions, it's not hard to go well over the standard deduction.
Think you need to consider that medical expenses are not deductible until they exceed 7.5% of AGI, and that fact that someone with 20k of retirement income probably is not paying LTCI and is not contributing much to charities. The vast majority of tax returns that I prepare for seniors(VITA volunteer) in this situation take the standard deduction. The change during 2008 and 2009 tax years allowing people to add up to 1000 to standard deduction for married filing joint returns for property taxes (500 for singles) is a good thing for many people.
Is that 43% top rate inclusive of local/state/provincial taxes or merely federal taxes?
It is so complicated to really figure it out and understand how everything works together that I am not sure how to determine the actual marginal rate.
As soon as FUEGO stops doing what the Fed. Gov. wants him to do (having kids and sending them to college and buying housing) then his tax bill will rise. He just happens to be at a time in his life when the stars are aligning tax wise (kids, a mortgage etc) This will peak and end soon enough unless he wants a perpetual mortgage payment, continues to be fruitful and multiply or he can find other ways to trade his tax burden for fulfilling the Gov's desire.