The Wall Street Journal’s Richard Rubin writes that “Some high-income business owners could face marginal tax rates exceeding 100% under the Senate’s tax bill, far beyond the listed rates in the Republican plan.”
How is this possible? Tax breaks that fade as income rises combined with the elimination of the deduction for state taxes can create a combined federal and state tax rate that exceeds a business owner’s marginal income.
The example Rubin provides centers on a self-employed attorney in New Jersey making $615,000 a year who faces a 105 percent tax rate on additional income. The result is limited to some very specific circumstances — income level, type of business, state of residence — that may not apply to many taxpayers, but is troubling nevertheless. A spokesperson for the Senate Finance Committee said lawmakers were looking into the issue.