Currently, the highest marginal tax rate for the federal income tax is 35%. Throw in a 2.9% Medicare tax and the highest rate for this year climbs to almost 38%. In California, with maximum 9.3% state income tax, the highest rate rises to 47.2% [Senik's note: This actually understates it. There is a top California income tax rate of 10.3% for those with incomes over $1 million as a result of 2004's Proposition 63, which dedicates the extra money to mental health services. It's often referred to as a 'surcharge' on the top rate, which likely led to Goodman's confusion].
It's just one of many unintended consequences that accompany a tax system as confiscatory as California's. Sooner or later, the governing class in Sacramento will figure out that, in a state with this many obstacles to commerce, higher tax rates inevitably lead to fewer tax dollars. My money's on later.Even Californians of moderate means face very high marginal tax rates, since the 9.3% rate kicks in at less than $100,000 of income. Take someone in the 25% federal income tax bracket, facing a 15.3% (FICA) payroll tax and a 9.3% California income tax. The combined marginal tax rate is almost 50%. This means that the individual (and her employer) have an incentive to spend up to 49 cents in order to avoid a dollar of income. California employers are betting that their employees would rather have a dollar's worth of (untaxed) goods and services in kind rather than 51 cents in cash.
