Asking For More By Limiting Deductions

Fotalia

A highly compensated Bishop Street executive recently complained that his effective state tax rate was something on the order of 16% even though the nominal maximum state income tax rate is 11% for those folks making big incomes.

How is it so, you say, that someone could be paying an income tax rate greater than the nominal maximum rate? Well, for these high-income individuals, making charitable contributions is one way to not only benefit the community, but it also provides a way to reduce the amount of their income that is exposed to the income tax. In fact, earlier this legislative session the Senate Ways & Means Committee held a hearing on this very subject of limiting the amount of itemized deductions that could be taken by high-income individuals and folks who showed up were not the high-income taxpayers, but the people who benefit from those charitable contributions.

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