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Effect of expiring tax cuts on the rich

September 22, 2010

As if on cue, no sooner had I posted my item about all the numbers crunching in connection with the Bush tax cuts than I get an e-mail from The Tax Foundation on its two reports focusing on high-income taxpayers.

The nonprofit, however, takes the impending federal tax hikes to the states.

Its Fiscal Fact No. 246 breaks down the "Top Marginal Effective Tax Rates
by State
under Rival Tax Plans from Congressional Democrats and
Republicans."

"If the plan supported by most Congressional Democrats becomes law,
the top marginal effective tax rate would rise to above 45 percent in
many states and above 50 percent in New York City," according to the Tax
Foundation announcement. "If a rival proposal prevails, one supported
by Republicans and some Democrats, the range of top marginal tax rates
would be approximately 5 percentage points lower in each state."

The 10 states with the highest rates under the Democrats' tax proposal are:

  1. Hawaii  49.69 percent
  2. California 49.37 percent
  3. Vermont 48.77 percent
  4. Maryland 48.60 percent
  5. New York 48.44 percent
  6. New Jersey 48.33 percent
  7. Maine 48.16 percent
  8. Minnesota 47.76 percent
  9. Idaho 47.73 percent
  10. North Carolina 47.69 percent


New York City and the District of Columbia are not included in the
Tax Foundation's rankings, but if they were, the Big Apple would rank
number 1 with a 50.68 percent tax rate and Washington, D.C., would be
number No. 8 with a 48.16 percent tax rate.


The 10 states with the highest rates under Republicans' tax proposal
include:

  1. Hawaii 44.26 percent
  2. California 44.14 percent
  3. Vermont 43.30 percent
  4. Maryland 43.13 percent
  5. New Jersey 43.02 percent
  6. New York 42.96 percent
  7. Maine 42.66 percent
  8.  Minnesota 42.24 percent
  9. Idaho 42.21 percent
  10. Ohio 42.19 percent

New York City and D.C. would rank number 1 (45.30 percent) and number 8 (42.66%), respectively.

"A
top marginal effective tax rate of 50 percent does not mean that 50
percent of one's entire income is taken in taxes," explained Tax
Foundation Senior Economist Gerald Prante. "It simply means that any
additional income that the person earns would be taxed at a 50 percent
rate."

How different are the rich? In the companion study, Fiscal Fact No. 247, the Tax Foundation provides "A Profile of the High-Income Taxpayers in
the Middle of the Tax Cut Debate."

The
report compares taxpayers under Obama's middle-class threshold — $200,000 for single tax filers, $250,000 for married tax filers and
$225,000 for head of household filers — to those making more than that.

Are
they married? Do they have college degrees? Do they have children?
Where do they live? How old are they? Where do they work?

In short, the organization wanted to know the answer to that age-old question, Are
the rich different?

The answer: Yes.

Those making enough, for the sake of tax argument, to be classified as rich do tend to be married, highly educated and live in metropolitan areas.

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Comments
  • Not to state the obvious, but the $250K is AGI. This means a 50yr old couple can have $44K off the top to their 401(k)s as well as $5K to a flexible spending account and perhaps $5K for child care. (Disclosure – “Jane” is 54 and our daughter is 11, so the $5K child care and $22K 401(k) aren’t always mutually exclusive).
    This can put gross earnings closer to $300K and still be part of the $250 AGI Obama is promising not to touch.

  • They have had their big tax cuts and have done nothing but outsource our jobs, cut our pay and hire cheap illegal workers . These businesses have used this recession as an excuse to line their own pockets and rob the pockets of the middle class. Had they created jobs here in America we might be a little more inclined to budge. The fact is they have used this poor job market as an excuse to punish their employee’s because they know we would have a hard time finding jobs elsewhere. Let them share the pain that the middle class has had to endure!!!!

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