by Natasha Altamirano  www.TaxFoundation.org 

Washington, DC- As Congress considers a surtax on the nation’s top earners to fund an expansion in federal health care, a new Tax Foundation analysis shows that 33 states would see top tax rates exceed 50%.

One new funding proposal being floated by the House Ways and Means Committee is a 4% surtax levied on couples with adjusted gross incomes (AGI) over $250,000 and individuals earning more than $200,000.

“Combining top federal and state rates, and factoring in all deductions, the government would be taking over half of every additional dollar from high-income taxpayers in two-thirds of the states under this latest funding scheme,” Tax Foundation President Scott Hodge said. “In fact, even in the seven states with no income tax, the lowest top tax rate would be about 46%.”

Tax Foundation Fiscal Fact No. 176, “Top Effective Marginal Rates Under a 4 Percent Health Care Surtax by State,” may be found online at: http://www.taxfoundation.org/publications/show/24848.html

The hardest-hit states would be Hawaii (55.8%), Oregon (55.8%), New Jersey (55.6%), California (55.4%), Rhode Island (54.8%), Vermont (54.4%), New York (54.00%), Maine (53.6%), Minnesota (53.0%), and Idaho (52.9%). Washington, DC, and New York City would see their top effective marginal rates rise to 53.6% and 57.3%, respectively. The effective marginal tax rate takes into consideration deductions and adjustments in order to present a truer measure of an individual’s rate.

Only 17 states would see their top tax rates remain under 50%, with 45.9% being the lowest in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

“Tying federal health care expansion to unstable sources of funding such as these so-called ‘millionaires’ taxes’ is a recipe for revenue disaster,” Hodge said. “As we have seen time and again, boom-time revenue explosions inevitably give way to budget-shortfall busts.”

To calculate the effective marginal tax rate on top earners, the Tax Foundation assumed the current state income tax rates will remain (including those recently increased), the top federal taxable income rate will rise to 39.6 percent as is scheduled to occur in 2011, and a new 4 percent surtax on AGI is will be imposed.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

Fiscal Fact No. 176 can be found at:  http://www.taxfoundation.org/publications/show/24848.html

Reach Tax Foundation Manager of Media Relations Natasha Altamirano: naltamirano@taxfoundation.org