Top Rates in Each State Under Joe Biden’s Tax Plan

President Joe Biden’s tax plan would yield combined top marginal state and local rates in excess of 60 percent in three states: California (62.64 percent), Hawaii (60.34 percent), and New Jersey (60.09 percent). Marginal rates would also exceed 60 percent in New York City (62.03 percent).

Calculating Top Marginal Rates Under the Biden Plan

Examples from California, New Jersey, New York, and New York City
Federal
Top Rate	39.6%
Social Security Payroll Tax Above Donut Hole*	6.2%
Medicare Payroll Tax*	1.45%
Additional Medicare Tax (HI)	0.9%
Pease Limitation	1.188%
* Employee-side only
State	CA	NJ	NY	NYC
State Top Marginal Rate	13.30%	10.75%	8.82%	12.696%
SALT Deduction Capped at 28%	-3.724%	-3.010%	-2.470%	-3.555%
Combined Top Rate without SALT Cap	58.91%	57.08%	55.69%	58.48%
Combined Top Rate with SALT Cap	62.64%	60.09%	58.16%	62.03%
Combined Top Rate including Employer-Side*	65.29%	62.92%	61.10%	64.73%
* Uses broader base of compensation to include employer-side contributions in both numerator and denominator

(Table 2 at the bottom of this post shows combined top rates in all 50 states and the District of Columbia under the Biden plan.)

Under current law, the top combined marginal rate on income is comprised of the top federal rate (37 percent); the Medicare payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. (1.45 percent employee-side); and the additional Medicare tax created by the Affordable Care Act (0.9 percent)—plus the top state rate, the highest of which is 13.3 percent in California. Elements of the Biden proposal that would impact combined marginal rates include:

1. Raising the top marginal individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate to 39.6 percent, a restoration of the pre-TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Cuts and Jobs Act (TCJA) rate;
2. Creating a payroll tax “donut hole” where the Social Security tax (6.2 percent each for employer and employee), currently only imposed on the first $137,700 of wage income and therefore not part of a marginal rate, is restored above $400,000 of income;
3. Restoring the so-called Pease Limitation, which reduces the value of itemized deductions by 3 percent of every dollar of taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. above a certain threshold (which can be expressed as a 1.118 percent marginal rate under a 39.6 percent top rate tax); and
4. Capping all itemized deductions at 28 percent.

Only a small percentage of taxpayers will see any of their income exposed to these combined top marginal rates, and effective rates are lower than marginal rates, which are the rates imposed on the last dollar of a taxpayer’s income.

Biden’s published tax plan does not include the repeal of the state and local tax (SALT) deduction cap, which is a priority of some leading congressional Democrats, though the Biden campaign has indicated at times that this would be part of the tax package and has more recently suggested that this may be left to the discretion of Congress. Table 2 shows top marginal rate calculations with and without the elimination of the SALT deduction cap. In the former scenario, the 28 percent overall deduction cap is applied.

Payroll taxes are imposed on both employers and employees, but public finance scholars generally agree that the burden of both sides of the tax is borne by employees, the employer side contribution in the form of lower wages. While wage stickiness would likely mean that it would take several years for employees to bear the full burden of a newly-imposed donut hole payroll tax (wages would grow more slowly until this was accomplished), this would be the long-run result. So we have calculated an all-in marginal rate inclusive of employer-side payroll tax payments as well. In this scenario, we have included those employer contributions in both the numerator (tax liability) and the denominator (compensation).

Top Marginal Rates Exceed 60 Percent in Three States Under the Biden Tax Plan

Combined State and Local Top Marginal Rates in Each State Under Biden’s Tax Plan
State	SALT Cap Repealed	SALT Cap Retained	With Employer Contributions
Alabama	52.94%	54.34%	57.58%
Alaska	49.34%	49.34%	52.94%
Arizona	52.58%	53.84%	57.12%
Arkansas	54.09%	55.94%	59.07%
California	58.91%	62.64%	65.29%
Colorado	52.67%	53.97%	57.24%
Connecticut	54.37%	56.33%	59.43%
Delaware	54.09%	55.94%	59.07%
Florida	49.34%	49.34%	52.94%
Georgia	53.48%	55.09%	58.28%
Hawaii	57.26%	60.34%	63.16%
Idaho	54.33%	56.27%	59.38%
Illinois	52.90%	54.29%	57.54%
Indiana	51.66%	52.57%	55.94%
Iowa	55.48%	57.87%	60.86%
Kansas	53.44%	55.04%	58.23%
Kentucky	52.94%	54.34%	57.58%
Louisiana	53.66%	55.34%	58.51%
Maine	54.49%	56.49%	59.58%
Maryland	53.48%	55.09%	58.28%
Massachusetts	52.94%	54.34%	57.58%
Michigan	52.40%	53.59%	56.89%
Minnesota	56.43%	59.19%	62.09%
Mississippi	52.94%	54.34%	57.58%
Missouri	53.23%	54.74%	57.95%
Montana	54.31%	56.24%	59.35%
Nebraska	54.26%	56.18%	59.29%
Nevada	49.34%	49.34%	52.94%
New Hampshire	49.34%	49.34%	52.94%
New Jersey	57.08%	60.09%	62.92%
New Mexico	52.87%	54.24%	57.49%
New York	55.69%	58.16%	61.13%
New York City	58.48%	62.03%	64.73%
North Carolina	53.12%	54.59%	57.82%
North Dakota	51.43%	52.24%	55.63%
Ohio	52.79%	54.14%	57.40%
Oklahoma	52.94%	54.34%	57.58%
Oregon	56.47%	59.24%	62.13%
Pennsylvania	51.55%	52.41%	55.79%
Rhode Island	53.65%	55.33%	58.50%
South Carolina	54.38%	56.34%	59.44%
South Dakota	49.34%	49.34%	52.94%
Tennessee	49.34%	49.34%	52.94%
Texas	49.34%	49.34%	52.94%
Utah	52.90%	54.29%	57.54%
Vermont	55.64%	58.09%	61.07%
Virginia	53.48%	55.09%	58.28%
Washington	49.34%	49.34%	52.94%
West Virginia	54.02%	55.84%	58.98%
Wisconsin	54.85%	56.99%	60.04%
Wyoming	49.34%	49.34%	52.94%
District of Columbia	55.78%	58.29%	61.25%
Notes: Includes top federal and state income tax rate, employee-side payroll taxes, Medicare (HI) tax, and Pease limitation. The SALT deduction cap repeal scenario applies the 28 percent cap on itemized deductions. The employer contribution scenario includes employer-side payroll taxes in calculations of both tax liability and taxable income, and assumes an uncapped SALT deduction.

These combined rates would be the highest since the Tax Reform Act of 1986, which reduced the top marginal individual income tax rate from 50 to 28 percent over two years, and the all-in federal rates would be the highest since 1981. In 1986, before the provisions of the Tax Reform Act of 1986 went into effect, seven states and the District of Columbia featured combined top marginal rates higher than California’s under the Biden plan, led by New York at a combined 63.9 percent.

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