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

The Tax Foundation - Obama Budget, Health Care Surtax Will Shrink Federal Income Tax Base: "Washington, DC, 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 those living in 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%. The Fiscal Fact is available online at http://www.taxfoundation.org/publications/show/24935.html.

'Obama's plan to raise the top tax rate from 35% to 39%, combined with the health care surtax, would mean top-earning households are keeping 17% less of their income after paying taxes,' Carroll said. 'Those earners can be expected to reduce their reported incomes by nearly 7%, resulting in a smaller tax base and less revenue for the government.'"