Tax Increases Can Lead to “Drastic Changes”

Yesterday Phil Mickelson hinted at “drastic changes” he will be making because of increasing federal, state and self-employment taxes.  We’re not sure what he means by that, but speculation includes possibly moving from his long-time home of California. 

According to Phil, with the increases to all 3 of those tax rates, his total tax burden is pushing 63% of his income.  This is the case with most athletes and entertainers.  They pay in the highest rate brackets for federal, state, city and self-employment tax.  We all know that the new federal rate is 39.6%, but don’t forget the Medicare surtax, the lost itemized deductions and personal exemptions.  California now went up to 13.3%.  Self-employment tax is again back to 15.3% (2.9% for most of the income) and if you live in a city that taxes you – some up to 3% – you can see how it all adds up. 

While drastic, it becomes understandable that people consider moving when you could save that much tax.  If Phil makes $5,000,000 a year, let’s ignore the significant endorsement income, his state tax savings alone could be over $650,000 a year if he moved to a state that doesn’t have an income tax. 

This poses an interesting question:  would you move away from California?  If you had enough money to live on, would you keep working if you could only keep 1/3 of your earnings?  Let us know in the comments section.