Tuesday, July 21, 2009

From Tax Breaks to Tax Hits

In the struggle for a less unequal America, could the House health care surtax on the wealthy turn out to be a game-changer?

Sam Pizzigati's picture

The push to overhaul the system that takes care of America's health may be on the verge of morphing into something even grander, a promising new offensive against the unhealthy concentration of America's wealth.

The entire House Democratic leadership now stands united behind health care reform legislation that hikes taxes on America's richest well beyond the levels that pundits, over recent years, have deemed "politically feasible."

surtax chartAt the heart of that legislation: a 5.4 percent surtax on income over $1 million.

Taxpayers who make over $1 million, under the bill now moving through House committees, would pay $88,582 more to Uncle Sam in 2011, the year the bill would kick in. Taxpayers who make over $2.4 million — America's most affluent 0.1 percent — would see their tax bills go up by an average $280,000.

Overall, if the House surtax ever became law, 2011 would likely see the largest single-year tax hike on America's rich since 1935.

That's because the George W. Bush tax cuts enacted in 2001 and 2003 — a bonanza for the awesomely affluent — all expire at the end of 2010. President Obama has pledged repeatedly that he won't let any of these tax cuts for the rich be extended.

If the President sticks to that promise, the tax rate on income in the nation's top income bracket — currently 35 percent — would revert back to 39.6 percent, the rate in effect when Bill Clinton left the White House. The House health care surtax would bring that top rate, on income over $1 million, to 45 percent.

The United States hasn't seen a tax rate on the rich that high since 1986.

The health reform surtax would actually take a bigger bite out of rich people's income than these numbers suggest, Citizens for Tax Justice points out, for two reasons. The first: The surtax would apply to "adjusted gross income," the IRS label for income before taxpayers subtract deductions and exemptions.

Rich people do far more subtracting than average taxpayers. They've lobbied hard, over the years, to fill the tax code with loopholes, and they aggressively exploit these loopholes to lower their "taxable" income.

Rich people, under the House health care reform, wouldn't be able to do this exploiting on the surtax. They would have to pay surtax on what they actually make.


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