My Marginal Tax Rate is >60%

[madamwitty]

Is your concern that some people would only run this analysis for the wife's income but not for the husband's?

Well, the conversation is supposed to be gender-neutral at this point, but yes, my concern is that people take A's situation as fixed and B's situation as contingent, which I think is unfair to both parties.

I agree that many couples unfairly consider only one person's working hours as a variable, and that messes with their math. A lot of non-financial considerations come into play (e.g. who WANTS to work, who would be happier to stay home with kids) that get reflected (sometimes incorrectly) in such calculations.

DH and I definitely consider earnings in terms of "household income" rather than assigning to individuals. I suggested to DH last night that he might reduce his work hours if he wanted (and if he could negotiate it with his boss), to offset the extra hours I picked up. The flip side of marginal taxes being high is that marginal loss of take home pay is not so detrimental at this AGI range. Not sure if he'll do it, though.

[MDM]

25% Federal tax bracket
9.3% CA tax bracket
5% (Lose $50 child tax credit per $1000, x3 kids regardless of # of kids)
13.75% (Lose $275 of partial tIRA deduction per $1000, in the 25% bracket, x2 adults)
7.65% FICA
0.9% CA SDI

61.6% TOTAL

It's worse:

25% Federal tax bracket
14.415% = 9.3% CA tax bracket * [$1550/$1000]  (change in AGI per $1000 of higher income, due to tIRA deduction phaseout)
7.75% (Lose $50 child tax credit per $1000, x3 kids regardless of # of kids) * [$1550/$1000]  (change in AGI per $1000 of higher income, due to tIRA deduction phaseout)
13.75% (Lose $275 of partial tIRA deduction per $1000, in the 25% bracket, x2 adults)
7.65% FICA
0.9% CA SDI

69.465% TOTAL

The 68.565% calculated in the case study spreadsheet and displayed in the chart in a previous post did not include the 0.9% CA SDI.

Fortunately this rate applies "only" to ~$5000 of income and drops to "only" ~47% for a long stretch thereafter, but it is a very real rate for that $5000.

[beltim]

Do you itemize deductions?  If so, it's not quite as bad as MDM indicates, because you could deduct the marginal CA taxes from the marginal federal taxes.