2/7/2013 3:00 AM ET|
Why you should pity Phil Mickelson
The golfer has a sweet swing but a sour view of the federal income tax. As a pro athlete, he pays a far higher rate than many on Wall Street.
Does Phil Mickelson have a legitimate beef when it comes to his taxes? The Hall of Fame golfer and one of the world's highest-paid athletes recently caused a stir when he threatened to move out of his native California -- and hinted at perhaps even retiring from golf -- because of his high state and federal tax rates.
Mickelson reportedly earned nearly $48 million last year. He was reacting in part to California's newly passed Proposition 30, which raises the state tax rate on people earning more than $1 million from 10.3% to 13.3%.
And as The Wall Street Journal recently reported, federal tax rates on income of more than $400,000 rose this year, from 35% to 39.6%. At the same time, according to the WSJ, "'Obamacare' levies a new 3.8% surtax on investment income and raises the Medicare tax by 0.9% on wages over $200,000. Limits on itemized deductions for high earners have also been reinstated, which will raise many athletes' marginal rates by one to two percentage points."
While "Lefty," as Mickelson is known, quickly backtracked and apologized for his comments, he also opened the door on something that a lot of affluent folks and their accountants already know: Rich people are not all equal when it comes to the taxes they pay.
"If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63%," Mickelson said at the time.
Analysts believe his actual tax rate is closer to 50%, according to CNBC. But still, how does Mickelson end up paying about half his income in taxes when Mitt Romney, who's reportedly worth about $250 million, famously had a rate of around 14% on his 2011 taxes?
Or, to quote Salary.com, "How does a man worth hundreds of millions end up with a tax rate similar to that paid by a household earning $50,000 per year?"
One big difference is in their jobs. "If you look at someone like a professional athlete, they are earning their income through their services, through labor, similar to a construction worker," says Sharon Lassar, a director of the school of accountancy at the University of Denver's Daniels College of Business. "And income that is earned through labor is ordinary income that is subject to U.S. taxes today as high as 39.6%. That's after the legislation that was passed to deal with the fiscal cliff; it was lower before that."
In comparison, Romney's income likely came through capital gains -- the profits from selling assets such as real estate or stocks -- acquired through his partnership with firms that buy and sell other companies. "And the sale of those underlying companies is a capital gain; it generates a capital gain to the partnership," Lassar says.
Romney's income is taxed twice – first at the corporate level and a second time when reported on a personal income-tax return. As he said during his interview with "60 Minutes" last September, "One of the reasons why the capital-gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as 35%."
The income Romney and others like him report on their federal tax returns comes mostly from capital gains, which currently are taxed at a high of 23.8%. But last year, before the fiscal-cliff legislation, they were taxed at a maximum of 15%. "And that's why Mitt Romney's tax rate was just under 15%," Lassar says, "because he also had charitable contributions and other items which reduced his taxable income."
"Essentially, the (federal) policy is this: If you have income from capital, we're going to tax it at a preferential rate," Joseph Newpol, a professor of law, taxation and financial planning at Bentley University in Waltham, Mass., explained to Salary.com. The government's rationale for that lower capital-gains tax rate, he says, is "to encourage people to invest in stocks, bonds and things like that because that's good for the economy, it creates jobs."
Romney also came under fire during his presidential campaign for not providing enough of his tax returns for public scrutiny. But Lassar says those returns wouldn't have provided much political ammunition to Romney's opponents, because they cannot really explain the tangled way that investment income is earned and taxed.
Others look at the discrepancy between what a top athlete and a world-class investor pay in taxes in a more pragmatic way.
"The Mitt-Lefty paradox has a simple explanation: In America, we tax work. And highly," Edward McCaffery, a professor of law, economics and political science at the University of Southern California, said recently on CNN.com. "We do not tax capital or wealth much at all. Indeed, if you have wealth already, taxes are essentially optional."
More on taxes:
VIDEO ON MSN MONEY
Come on down to Texas Phil! Rick Perry will kiss you on the lips when you cross the state line. You have a problem with that? Come on, he's not a bad looking guy!
What about the Woodlands, a few miles north of Houston. The courses are really nice and you would live close to me. I'll give you golf tips free of charge!
Oh poor Ohil....woo is me...you self center, spoiled, self-righteous, ego maniac...there are people struggling everyday trying to make ends meet and you have the nerve to complain because you can't believe you have to pay 7-8% more on your taxes...you want to cheese with that wine you selfish fat ****...resign why don't you...never liked your smirky ****...and you are the only pro golfer who is complaining...is that your excuse or you aren't the golfer you iuse to be...matter a fact you never really was....how arogant...Oh, woo is me...4 days of playing a sport you love and most people dream of being able to play at your level and make the kind of money that you make that most people dream of making....you suck FAT BOY
It's government theft. We've become a nation of free-loaders, feeding and financed by the successful and industrious, and building an increasing bureaucracy that does little other than feed off someone else’s productivity. No longer “Ask not what your country can do for you, but what you can do for your country" but "...I've got my phone!" Smug leeches, who ask “Why can’t I have some of what you have?” Hey, Phil didn’t win that himself – he didn’t build that golf course…he didn’t make those clubs…he didn’t make those balls. Oh, I hear America, talking to each...Suck. Suck. Suck.
The Feds and States don't deserve nor do they earn the right to steal the money from its citizens when it cannot control its wasteful spending and people do not deserve to be given a lifestyle by the government as if they "deserve" to be treated equal. They have the equal right and opportunity to earn whatever they can, but they are not guaranteed an equal outcome - that is up to them and not the government. There is no such thing as "fairshare" if all citizens are not treated equally - to have those that pay no taxes and others that are over taxed because they can care for themselves is not how the government should treat its successful citizens. Because the government is bloated and wasteful doesn't mean it should have the right to demean those that aren't and it is time our government and its non-tax paying citizenry "get a life" and be responsible. Phil, please leave California - a state without a balanced budget (even this years fake one) don't deserve your taxes when it has done nothing but taken from people like you and haven't given back anything of value. You earned it!
Yea, I pity him. And I'm no where near his tax bracket! Not even close!
Working 6 months out of the year just to satisfy taxes is theft! The government basically ran the Mafia out of business for the same thing...graft! Hated the competition eh? And living in Califoreignya is just adding injury to the insult! One of the top welfare-free loader states in the country...nearly bankrupt, and they're trying to "fix" their problems on the backs of those who make money the old fashioned way as opposed to standing around with their hands out! He should move out! I only lived there 4 years...but at 19 I saw the handwriting on the wall...and hit the road. And EVERYTHING I predicted would come to pass...has indeed come to pass! Been gone over 40 years...and will NEVER go back!
Move Phil...while you still have enough green in your jeans to be able to afford that too!
You guys need to understand that income/wage taxes are just the tip of the iceberg. You pay sales tax, you pay property tax, you pay tag/title/license fees, you pay all that crap that doubles your phone bill, you pay disposal tax on your tires, gasoline taxes....etc, etc....In addition, just about every item you buy has corporate income taxes and fees built into the price.
If you manage to keep a decent wad after all that, the government takes some of it when you die.
It has been a while since I studied it, but a wealthy person could see 80% or more of every dollar they make funnelled through one branch of government or another.
You wonder why there is a Tea Party? You should also wonder how much longer they are going to take it.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.