5.4% Health Surtax, Taxpayers in 39 States Would Pay a Top Tax Rate Over 50%
Updated Tax Foundation report shows that 39 states would see top tax rates exceed 50% under a health care funding plan announced today by House Democrats.
New taxes to fund the federal government’s plan for higher health insurance spending continue to be debated in Washington. According to a new Bloomberg report, the top surtax rate will be 5.4 percent in the House plan. That will be the top rate in a three-tiered surtax aimed at high-income tax returns:
The latest proposal—one of several floated on Capitol Hill in the past few days and the third analyzed by the Tax Foundation since Friday—would impose a surtax of 1 percent on married couples with adjusted gross incomes (AGI) between $350,000 and $500,000 (singles between $280,000 and $400,000); 1.5 percent on couples with incomes between $500,000 and $1 million (singles earning between $400,000and $800,000); and 5.4 percent on couples earning more than $1 million (singles beyond $800,000).
States have been raising taxes on this same group, leading to concern over how high the combined tax rates would be in each state, especially in the growing number of states with double-digit tax rates.
Let it be made clear though that these are MARGINAL rates for the income tax. Somebody who makes a million dollars doesn’t pay the top rate for the entire million. This report makes it sound as if somebody who makes a million will pay $500 million in taxes; however, that’s not quite the case. Plus these folks have deductions out the wazoo.
Neil, You are right about the difference between marginal rates and effective rates. Someone with $1 million in taxable income would pay around $320,000 or 32%, not 35%. But, if a State has a 10% income tax, total effective tax rates would be 42%, and the surcharge could well bring the total up to 50% for the millionaires. Here’s why.
If the language in the Tax Foundation report is accurate, the top surcharge of 5.4% isn’t really a surcharge, imho. The 5.4% applies to adjusted gross income, not taxable income. Correct me if I’m mistaken, but I would have thought that a surcharge would be applied to a persons tax liability, not their gross income? What that could mean is that the 5.4% would have a much greater impact on total taxes than a more common surcharge on tax liability?
All in all, a lousy idea and I can only hope it dies in the Senate?
Hank...to pile on - I believe this report is just income tax. Think of all the other taxes we pay (ie. Sales Tax).
Personally, I would prefer a VAT or a FairTax-style consumption tax to pay for universal health insurance. I think its totally ufair to make high income families pay for everyone else’s health insurance. They already pay higher income taxes as it is, no point in piling on.
I think this is just a bluf, and that the cost will be spread around in the final bill.
Hayden, you’re not alone there. A Rasmussen poll states that Democrats strongly support a national sales tax to provide universal health insurance coverage. Republicans are opposed by a three-to-one margin, and those not affiliated with either major party are opposed two-to-one.
I own a company with 30 employees. We pay the full cost of health insurance for each employee. If they want to add their family, they pay for that. It costs me an average of $200 per month per employee for an HSA plan with a high deductible. Employees can also opt for a standard PPO plan, but they must pay the difference between what the HSA plan costs and what the PPO plan costs (about $60 per month). About 1/3 of our employees opt for the PPO plan.
Those who are intelligent enough to stick with the HSA plan come out much better, assuming they contribute something to their HSA account (about 1/3 of those in the HSA plan contribute).
We have one employee who contracted cancer and so far her medical costs have been in excess of $1MM over 2 years. She is on our HSA plan and so far, her total out of pocket expenses have been $10,000 ($5,000 per year). Under the PPO plan, her expenses would have been substantially more because it has an 80/20 co-pay. The HSA plan does not have a co-pay after the initial $5,000 deductible is reached.
If the Obama health plan passes as it is now written, we will drop all insurance and probably lay off one or two employees. Ironically, most of our younger employees voted for Obama. They will be the first to be laid off.
Paco,
You wrote: “If the Obama health plan passes as it is now written, we will drop all insurance and probably lay off one or two employees.” Granted I don’t fully understand either the Obama plan or the details of your business. However, I have read that if a business doesn’t offer health insurance, they could be tagged with an 8% of payroll “fee”.
Your 30 employees, assuming a national average income, cost you an estimated $1.4 million in payroll annually. You wrote that your health care costs were $200 per employee monthly or $72,000 annually. But the 8% penalty would cost $112,000 in fees. Why drop your health care plan? It seems to be the less costly choice.
Also, why would you lay off employees? What is there about the Obama plan that raises costs/reduces profits?
I’ve never owned a business, so please forgive me if my ignorance is showing. Your input as a business owner is certainly of interest.
Too few people understand the FairTax concept. Get ahold of one of the books. Read it and send it off to your representatives in Washington. Low cost copies at the following link:
http://shop.ebay.com/merchant/audioimagegroup_W0QQ_nkwZQQ_armrsZ1QQ_fromZQQ_ipgZ
Dave,
What on earth makes you think that reading a couple of marketing comic books written by a radio talk show jock and an obscure Georgia Congressman would make anyone knowledgeable about the Fairtax? This site has an excellent reference section which contains Fairtax studies both pro and con.
If you are sure that you know lots about the Fairtax and HR25, why not take my small quiz that follows?
The following are some Fairtax statements I have heard or read over the last five years. You are probably familiar with most of them already. Please read each of them and consider whether they are true or false.
(1) HR25 abolishes the IRS and the IRC.
(2) There are 67,000 pages in the Internal Revenue Code and supporting Regulations.
(3) A sales tax inclusive rate of 23% would be revenue neutral.
(4) The after tax price of retail purchases will be about the same.
(5) The “prebate” is a tax refund paid in advance.
(6) Your dollars will purchase more under the Fairtax.
(7) You choose when and how much tax to pay.
(8) Everyone will be economically better off under the Fairtax.
(9) Interest bearing investment and debt instruments are not taxed.
(10) There is $10-$15 trillion of US owned assets in offshore accounts.
(11) Buying “used” goods, (tax previously paid), eliminates the tax costs from the sales price.
(12) A national sales tax would have no impact on State and Local governments.
(13) FICA payroll deductions are a tax.
(14) The Fairtax will save Social Security.
(15) The Fairtax is progressive.
Good luck!