Sotomayor on taxes redux
Solving the tax puzzle

State + federal health tax = 50%-plus rate

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Healthcare reform begins in earnest now that House Democratic leaders have officially introduced a $583 billion bill to pay for the overhaul.

Money, as usual, has been the biggest hurdle so far. Lawmakers have been struggling to come up with ways to pay for expanding medical coverage to the nearly 46 million uninsured Americans.

Details of H.R. 3200, America's Affordable Health Choices Act of 2009, were revealed on Tuesday. It would raise the necessary revenue in large part via a graduated surtax on higher-income earners.

In 2010, the House bill would institute a:

  • 1 percent surtax on joint filers with adjusted gross income (AGI) between $350,000 and $500,000 (between $280,000 and $400,000 for single filers);
  • 1.5 percent surtax on couples filing jointly who have AGI between $500,000 and $1 million (between $400,000 and $800,000 for single filers); and
  • 5.4 percent surtax on joint filers with AGI greater than  $1 million (greater than $800,000 for single taxpayers).

Don't forget state rates: But those percentages are just the added federal tax bite.

Calculations by the nonpartisan Tax Foundation indicate that if the maximum 5.4 percent surtax is enacted, the wealthiest taxpayers in 39 states would face a combined federal-state rate of more than 50 percent.

"That means government would be taking more than half of every additional dollar from high-income taxpayers," said Tax Foundation President Scott Hodge.

The problem for these higher-income earners is that states, facing budget crunches of their own, have been raising taxes on them.

Five hardest hit states: Residents in Oregon would be hit the hardest, according to Tax Foundation figures. The combined top rate in the Beaver State would be 57.54 percent.

Joining Oregon on the top five list with the highest effective marginal tax rate on wealthy residents would be Hawaii, New York, California and Rhode Island.

The Tax Foundation breaks out the rates for residents of those states in the table below if the 5.4 percent surtax becomes law. The calculations also assume that the current state and local income tax rates will remain through 2011 and that the top federal taxable income rate rises as scheduled to 39.6 percent.


Avg. Local Rate

State Rate

Top Federal Ordinary Rate

Health Care Surtax

Medicare Tax

Combined  Top Rate

Oregon 0.36%   11.00%    39.6%     5.4%      2.9%    57.54%

Hawaii 0.00%   11.00%    39.6%     5.4%      2.9%    57.22%

New York 1.70%    8.97%    39.6%     5.4%      2.9%    56.92%

0.00%   10.30%    39.6%     5.4%      2.9%    56.58%

Rhode Island

You can see where the other states rank under the House bill's surtax in the Tax Foundation's summary of its findings.

If you want to download a copy of the research in PDF format, check out the organization's Fiscal Fact 178.

Remember, this is just the beginning, but with the introduction of the H.R. 3200, the issue has once again picked up speed.

House Committee markups are scheduled for this week and the Senate Health, Education, Labor and Pensions (HELP) Committee, which had been struggling to piece together its version of healthcare reform, agreed on a proposal (but still just one of many to come) on Wednesday.


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