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TAX RATES

TREASURY
CONSIDERATIONS

POWER OF
COMPOUNDING

Paying taxes on income each year, as opposed to paying after a longer period of investment, erodes accumulation power. The higher the tax rate, the heavier the drag, and the greater the advantage of accumulating on a pre-tax, tax-deferred basis.

In most states, tax rates on earned income of top earners are now between 45% and 50%. In some cities, the combined effective rates exceed 50%.

Tax rates on investment income have increased as well. Interest, short-term capital gains and non-qualifying dividends are taxed as earned income (also called "ordinary" income). For long-term capital gains and qualifying dividends, combined effective rates are close to 30%.

For high earning Americans, there are two federal taxes, and potentially two state or local taxes, on their marginal income. The rate of tax depends on the character of the income:

Type of Income

Federal

Medicare

State

Municipal

Combined*

Earned Income (comp for services) 39.6% 3.8% 0%-13.3% 0%-3.98% 43.4%-51.4%
Interest/Nonqualifying Dividends 39.6% 3.8% 0%-13.3% 0%-3.98% 43.4%-51.4%
Qualifying Dividends 20.0% 3.8% 0%-13.3% 0%-3.98% 23.8%-31.8%
Short-Term Capital Gains 39.6% 3.8% 0%-13.3% 0%-3.98% 43.4%-51.4%
Long-Term Capital Gains 20.0% 3.8% 0%-13.3% 0%-3.98% 23.8%-31.8%
* Assumes state and municipal taxes deductible on federal return


State Tax Rates for High Earners

ALABAMA
5.0%
MONTANA
6.9%

ALASKA
0.0%
NEBRASKA
6.8%

ARIZONA
4.5%
NEVADA
0.0%

ARKANSAS
7.0%
NEW HAMPSHIRE*
0.0%

CALIFORNIA
13.3%
NEW JERSEY
9.0%

COLORADO
0.0%
NEW MEXICO
4.9%

CONNECTICUT
6.7%
NEW YORK
8.8%

DELAWARE
6.8%
NORTH CAROLINA
7.8%

FLORIDA
0.0%
NORTH DAKOTA
4.0%

GEORGIA
6.0%
OHIO
5.9%

HAWAII
11.0%
OKLAHOMA
5.3%

IDAHO
7.4%
OREGON
9.9%

ILLINOIS
0.0%
PENNSYLVANIA
0.0%

INDIANA
0.0%
RHODE ISLAND
6.0%

IOWA
9.0%
SOUTH CAROLINA
7.0%

KANSAS
4.9%
SOUTH DAKOTA
0.0%

KENTUCKY
6.0%
TENNESSEE*
0.0%

LOUISIANA
6.0%
TEXAS
0.0%

MAINE
8.0%
UTAH
0.0%

MARYLAND
5.8%
VERMONT
9.0%

MASSACHUSETTS
0.0%
VIRGINIA
5.8%

MICHIGAN
0.0%
WASHINGTON
0.0%

MINNESOTA
7.9%
WEST VIRGINIA
6.5%

MISSISSIPPI
5.0%
WISCONSIN
7.8%

MISSOURI
6.0%
WYOMING
0.0%

*New Hampshire and Tennessee tax dividends/interest at 5% and 6% respectively.


Rates for Selected Cities

BALTIMORE
3.05%
PHILADELPHIA
3.98%

CLEVELAND
1.00%
SAN FRANCISCO*
1.50%

NEW YORK
3.65%
ST. LOUIS
1.00%

*Imposed on employer