November 5, 2009
Those Hit by Health Care Surtax Would Pay 36% of Federal Income Taxes
Surtax Would Affect 0.3% of All Tax Returns, Which Are Responsible for 14% of AGI
Washington, DC, November 5, 2009 -- A popular defense of the proposed 5.4 percent surtax on high-income people to fund House Speaker Nancy Pelosi's health care reform plan is that it would only affect 0.3 percent of all tax returns. An analysis by the Tax Foundation shows that this small group earns about 14 percent of the nation's adjusted gross income (AGI), and would foot 36 percent of the entire federal individual income tax bill in 2011.
This assumes expiration of the Bush tax cuts for high-income returns, which would push the top two federal individual income tax rates from 33 percent to36 percent and from 35 percent to 39.6 percent, along with other tax increases. This is compared to the remaining 99.7 percent of tax returns, which earn 86 percent of AGI and would be paying 64 percent of all federal individual income taxes, according to Tax Foundation calculations.
"While the number of tax returns that would be hit by the health care surtax is relatively small, these tax returns make up a significant fraction of income and pay a disproportionate share of the current tax bill," Tax Foundation Senior Economist Gerald Prante explained in a blog post (http://www.taxfoundation.org/blog/show/25465.html) that includes a chart detailing share of income and tax burden borne by "surtax returns" and "non-surtax returns."
The proposed surtax of 5.4 percent would be levied on joint returns with AGI over $1 million and single returns with AGI over $500,000. Even if the surtax is not enacted, the top 0.3 percent of tax returns would pay 32 percent of all federal individual income taxes, assuming the Bush tax cuts for high-income returns expire. The remaining "non-surtax returns" would pay 68 percent.
If all the Bush tax cuts are extended and the surtax is not enacted, the 0.3 percent of tax returns that would have been hit would be responsible for 28 percent of the income tax bill, compared to the 72 percent footed by the rest of the returns.
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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To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.