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What Happens if it Costs Too Much to Work?
By JLP | June 21, 2007
Today’s WSJ contained the following letter to the editor:
Your June 14 editorial “100% Marginal Tax Rate” caught my eye, as that reality is, in effect, already here for us. Two years ago I came to the conclusion that it was actually costing me money to go to work. As a two-physician couple with two children, we required daily child care in order for both us to work, given our hectic schedules. That child care can only be purchased with pre-tax dollars. Given our dual income, every dollar I earned was taxed at an effective top marginal rate of 51.15% (35% federal, 1.45% Medicare, 6.2% Social Security, and 8.5% state). But it only got worse as we were swept into the Alternative Minimum Tax bracket as well. Living in such a high tax state as Maine, where property taxes and income taxes are some of the highest in the country, exposed us to the AMT tax as our federal tax deductions consist mostly of property tax, excise tax and state income tax payments.
The “Bush tax cut” is a myth, at least for us, as the AMT tax is costing us more money than the small decrease in the top marginal rate returned to us. The more I worked, the more state taxes I paid and the higher the AMT burden became. As an emergency physician, I found that after the state and federal governments took their share along with the AMT tax, I wasn’t making enough money to pay our child-care expenses with pre-tax dollars. Add to that the constant threat of being sued as an emergency physician, it only made economic sense for me to quit my job and take over child-care responsibilities full time. Now I no longer work as an emergency physician or employ a child-care provider (and pay her employment taxes), and our after-tax take-home pay has increased. Who says this isn’t a great country?
J. M., M.D.
Brunswick, Maine
This is what makes the AMT so ridiculous. Since under the AMT, you pay which ever tax bill is the highest, a tax cut could actually force you pay the AMT. Crazy isn’t it?
I wonder how many other families are coming to the same conclusion?
Topics: Taxes |