Obama Budget, Health Care Surtax Will Shrink Federal Income Tax Base

July 29, 2009

With the expiration of the Bush tax cuts and the implementation of a proposed health care surtax, in 2011 the top federal individual income tax rate will rise to more than 46%, and over 50% for residents of many states. This sharp increase in tax rates can be expected to reduce the size of the tax base and may raise substantially less revenue than the casual observer might think—perhaps only 60 cents on the dollar.

In Tax Foundation Fiscal Fact No. 182, “The Economic Cost of High Tax Rates,” Senior Fellow Robert Carroll explains that for every 1% decrease in the after-tax reward from earning income—what taxpayers get to keep after paying taxes—taxpayers reduce their reported income by about 0.4%.

Read the new Tax Foundation Fiscal Fact. More on the health care surtax:

Business Income Would Take Double Hit from New Surtax, Expiring Tax Cuts

House Leadership’s Health Care Plan Pushes Top Tax Rates Over 50% in 39 States

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