Could you explain how this works? I’m not familiar with the concept of deferring income taxes and how that can affect your adjusted gross income. Those are two different concepts in my understanding. The only way I am aware of to lower your AGI is through deductions which don’t apply above a certain earning level. Though, there’s bunch about this that I don’t have experience with.
The obvious one is through 401k deductions - I earned that income this year - I’ll pay taxes on it when I withdraw it - when you can afford to defer $30k of income (for a couple), that can make a huge difference in tax burden. If your household income is $60k - chances are pretty good you can’t take advantage of that - but at $250k+ a sensible person should be able to defer that amount. Deferred comp is another tax deferral option that is generally offered to highly paid individuals - pro athletes often get deferred comp. The tricky thing with deferred comp though is that if its yours you pay taxes on it - if the company keeps it, they put it in a sort of trust for you - you don’t pay taxes on it until you get it, but it remains the company’s asset and if they declare bankruptcy you’ll never get your money - it isn’t always a good choice to make if you work for - oh, say General Motors. Options are another one - you might be granted an option today - but until you exercise that option no taxes are owed (but don’t try for LTCGs on options - flip them when you exercise them or you can end up in deep tax doo doo and the AMT trap). Grants you owe taxes on the value of the grant when you get them, but Capital Gains - often long term - when you sell them. While insider trading is illegal, companies and executives often have a pretty good idea of what their stock will do when options and grants are handed out - allowing them to have more control over when they get income (and what kind of income that is) than Joe the Plumber. If you are pretty darn sure your stock is undervalued - and you give your execs a grant at $20 a share - they’ll pay income tax on that $20 a share - but if they are pretty sure that their target price in 18 months is upwards of $40 a share - they’ll pay LTCGs (and no social security) on the $20 delta IF they hold and IF they can sell at $40.
More complicated strategies involve setting up trusts so the income isn’t yours - it belongs to the trust. Of course, you get taxed on disbursements from the trust and you can’t have control over the trust. And, of course, trusts are for when you have a lot of investment income - you can’t earn your salary into a trust (as far as I know…)
Thank you. You could not have made my point more clearly. You cherry-picked three taxes and totalled them up and said, “See, it’s not so bad.” Perhaps you should consider running for office.
Did you add in the 15% for Social Security? You probably did, to get to 42%.
Did Ravenman buy any gasolene or diesel? If so, he paid a tax on it. Did he buy tires or batteries? If so, he paid more taxes. Does he have a phone? Cable TV? Cell phone? If so, he paid federal and possibly city and state taxes on the bill.
The fact that these revenue streams for the governement are so segregated allows them to be manipulated one or two at a time. That’s why I like the idea of a cap that forces them to be considered together. I don’t think it’s a workable idea, but it is appealing.
My own situation is aggravated because I have extra income coming from mineral lease royalites. That income gets taxed twice as property, once for a regulatory fee and 28% by the feds as income. I would also be liable for 15% for Social Security, except that my regular job puts me over the cap. Suitably, when I got home from work at 10:30 last night, there was another tax bill in the mail.
Oh, and another thing. Your own estimate on Ravenman’s tax load of 42% - you don’t see a problem with that? At what point to do people in that situation say “screw it” and quit trying so hard? Who are you going to tax then? Is everyone going to be happy when 1/9 people are producing and being taxed at %90 to support the other 9? What are you going to do when the one guy dies? 
I’ve known a lot of wealthy people - none of them have ever said “I’ll pay 45% of this in taxes, I guess I won’t bother to cash in on the other 55%.” In fact, a lot of them aren’t bothering to take home the whole dollar to start with (see above on deferring income). I do know a lot of people who stop working so hard because they get to the point where they are comfortable and have what they need.
Because of the regressive nature of so many of our taxes though, the next dollar I make is taxed LESS than the first dollar. I only pay FICA on the first $102,000 - the $102,001 gets a 6.2% tax break on it. My property tax is fixed - the more I make the smaller percentage of my income that is. And sales tax is something I only pay if I’m spending - I don’t spend every penny I make - and chances are pretty good that the 102,001st dollar is one I don’t have to spend. There is a taxation curve, and once you hit the top of it, if taxes are a motivating factor, each dollar you make after you peak the curve is taxed less.