How Much Are You Paying in Taxes?

Greg Cochran alerted me to an Op-Ed in the WSJ ("My Response To Buffett And Obama") by the former CEO of Amex, Harvey Golub, claiming "of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes." And Greg pointed out that with the maximum FIT rate at 35% and NY/NYC at ~12%, Medicare < 3% and FICA maxed out at 6k, and considering the deductibility of state and local taxes and other exemptions, he's unlikely to pay much more than 44%. We have give him the benefit of the doubt that his income is primarily subject to NY/NYC tax, otherwise it's beyond preposterous. (He's also ex-Chairman of the Board of AIG - which gives more weight to his being more mendacious than simply innumerate.)

But what truly amazes me about this is that in searching on this article in Google News, I couldn't find any article that directly questions this "80 to 90%" tax rate assertion. There's some push back in the comments section in this Accounting Today article, but no one seems to be able to actually sit down and work out the numbers. Innumeracy reins supreme! And then there's that bizarre mentions of "estate" taxes. So this blog post can be considered a public service - the only refutation of Mr. Golub's article in the webosphere that actually looks at numbers. As I write this it occurs to me he might also be paying some serious real-estate taxes - and perhaps he's counting that in his equation (and what he means by "estate" taxes?).

Apparently the way it works in NYC is that property taxes on single-family dwellings are 17% of 6% of assessed market value. It sounds like these valuations are rather dodgy in themselves, but let's assume he owns a $10 million dollar unit (I'm guessing he pays little property taxes on his "golf" homes in New Mexico and Florida). So that would work out to about $102k per year.

So, if that property tax explains the "80 to 90%" tax rate (let's call it 85%), then we have

.85Y = .44Y + 102

which equals Y = $248. So if his property is worth $10m, that means his income could only be $248k. Generally, his ~85% tax rate is possible if his NYC property is 40 times greater than his income. Maybe he should move.