July 13, 2009
Health Care Funding Plan Would Push Top Tax Rates Over 50% in 24 States
House Committee Floating "Millionaires' Tax" on Couples Earning More Than $350,000
Washington, DC, July 13, 2009 - As Congress considers a surtax on the nation's top earners to fund an expansion in federal health care, a new Tax Foundation analysis shows that 24 states would see top tax rates exceed 50%.
The new funding proposal settled on by the House Ways and Means Committee is a 3-tiered income surtax up to 3% depending on income. It will start at 1% for couples making $350,000 (and reportedly $280,000 for individuals), and it will reach 3% on couples with adjusted gross incomes (AGI) over $1,000,000 (and reportedly $800,000 for individuals).
The Tax Foundation released an initial report Friday based on another plan that had been floated that included a 4 percent surtax.
"Combining federal, state and local rates, and factoring in all deductions, the government would be taking over half of every additional dollar from high-income taxpayers in almost half of the states under this latest funding scheme," Tax Foundation President Scott Hodge said. "In fact, even in the nine states that don't tax wages, the lowest top tax rate would be about 45%."
Tax Foundation Fiscal Fact No. 176, "If Health Surtax Is 3 Percent, Taxpayers in 24 States Would Pay a Top Tax Rate Over 50%," may be found online at http://www.taxfoundation.org/publications/show/24848.html.
The hardest-hit states would be Oregon (55.2%), Hawaii (54.9%), New Jersey (54.7%), New York (54.6%), California (54.4%), Rhode Island (53.9%), Vermont (53.4%), Maryland (53.3%), Minnesota (52.0%), and Idaho (52.0%). Washington, DC, and New York City both would see their top effective marginal rates rise to 52.6%. The effective marginal tax rate takes into consideration deductions and adjustments in order to present a truer measure of an individual's rate.
Top tax rates in the other 26 states range from 44.9% to 50%.
"Tying federal health care expansion to unstable sources of funding such as these so-called 'millionaires' taxes' is a recipe for revenue disaster," Hodge said. "As we have seen time and again, boom-time revenue explosions inevitably give way to budget-shortfall busts."
To calculate the effective marginal tax rate on top earners, the Tax Foundation assumed the current state income tax rates will remain through 2011, the top federal taxable income rate will rise to 39.6 percent as scheduled, and a new 3 percent surtax on AGI will be imposed.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Fiscal Fact No. 176 can be found at http://www.taxfoundation.org/publications/show/24848.html. To schedule an interview, please contact Tax Foundation Manager of Media Relations Natasha Altamirano at (202) 464-5102 or naltamirano@taxfoundation.org.