This morning we shared Tony Nitti's story at Forbes about walking-KPMG billboard Phil Mickelson considering "drastic changes" because he is "in that zone that has been targeted both federally and by the state and, you know, it doesn’t work for me right now."
"It" being a combined tax rate that's pushing 62 or 63 percent, according to his Leftyness.
In other words — rich people problems! Federal taxes are going up; state taxes are going up; Phil probably has all kinds of self-employment concerns. It's the kind of stuff that gives rich dudes headaches and gets them to go on Fox News to complain about it.
But is that 62-63% rate right? Or even in the ballpark? It's hard to say since Phil didn't show his CPA's work, so we'll take a stab at it and then you guys can come up with other theories and tax planning ingenuity so Phil doesn't feel so putt out. Sound good? Great.
Nitti puts Phil's income at $48 million and we know he's a California resident. We'll start there and keep it simple because taxes are complicated.
Let's assume that all $48 million of Phil's income is taxed at the ordinary rate for 2013 — 39.6%. Since we know that he'll take a state income tax deduction on his Schedule A (forget the fact that Phil's deductions will be limited), that will bring his $48 million down approximately $6 million give or take a few pennies. If you apply 39.6% to $42 million, that gives you about $16.6 million in taxes. Add that to the $6 million in state taxes and you've got about $22.6 million in taxes, about 47% of his income.
Somewhere, Mitt Romney is laughing his ass off.
Now that calculation is sloppy and unfair for all kinds of reasons — Phil undoubtedly pays tons of property, sales and self-employment taxes which will raise his overall rate. And, obviously, we're not taking into account all the sweet rich dude tax breaks Phil gets like the mortgage interest and charitable contributions. Plus, his CPA undoubtedly tries to get as much of that income subjected to lower long-term capital gains rates as possible. All those things will lower his overall rate.
So is Phil's rate in the 60s? Meh. I doubt it. But as we all know, a good CPA will make that number happen one way or another if his/her client asks them to.
How can Phil help himself? Well, moving next door to Tiger Woods or Roy McAvoy would be a start. I'm sure his tax advisors have all kinds of ideas, but we'd rather hear yours. Help the man out.