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Issue Brief
No.
2 February 2010
New Health Care Taxes to Slam Tri-state
Area
Josh Barro, Walter B. Wriston Fellow
President Obama's latest health reform proposal, released early
this week, alters the tax implications of legislation previously
passed in the House and the Senate. The "Cadillac Tax"
on high-priced insurance plans will be significantly reduced. Originally
slated to raise over $200 billion over ten years, the Cadillac Tax
will now be delayed until 2018 and will raise only 15 to 30 percent
of the original figure, depending on how it is implemented.
Under the new plan, this foregone revenue will be replaced (and
then some) with a further expansion of the Medicare tax on high-income
earners, currently 2.9 percent on all earned income. The president's
plan would raise the Medicare tax to 3.8 percent on income over
$200,000 ($250,000 for joint filers) in line with the plan passed
by the Senate. Unlike the Senate's bill, however, it would also
expand the 2.9 percent tax to unearned income for those high-income
filers.
The initial release from the White House specified that the unearned
income tax would apply to income including interest, dividends,
rents, and royalties. A White House official confirmed on background
to Bloomberg News that the tax would also apply to the largest unearned
income category—capital gains.
Taxpayers in New York, New Jersey, and Connecticut have higher
average incomes than the country as a whole, and also tend to receive
a greater share of their income as unearned income. Therefore, these
tax provisions would disproportionately affect the tri-state area.
Based on a very preliminary Joint Committee on Taxation score of
the Obama plan and 2007 IRS Statistics of Income data, I have calculated
estimates of national collections from these tax provisions in the
year 2016, and collections for each state in the New York region.
Overall, our three states would pay about 20 percent of these new
taxes, despite being home to just 10 percent of the population and
earning only 14 percent of national adjusted gross income. Collections
from the three states would total $9.8 billion per year in 2016,
including $6.1 billion from New York State alone. For comparison,
last year's state income tax increase—the largest in New York history—raised
less than $4 billion.
This is a rough estimate and will be revised when a formal JCT
score is released next month.
| State |
CT |
NJ |
NY |
Tri-state |
US |
| Earned income surcharge |
$0.5 |
$0.9 |
$1.8 |
$3.2 |
$13.1 |
| Unearned income tax (except cap gains) |
$0.4 |
$0.6 |
$1.8 |
$2.8 |
$15.4 |
| Cap gains tax |
$0.6 |
$0.7 |
$2.5 |
$3.8 |
$20.8 |
| Total |
$1.5 |
$2.2 |
$6.1 |
$9.8 |
$49.3 |
| |
|
|
|
|
|
| Earned income surcharge |
4.1% |
6.9% |
13.4% |
24.4% |
|
| Unearned income tax (except cap gains) |
2.7% |
4.0% |
11.8% |
18.5% |
|
| Cap gains tax |
2.8% |
3.3% |
12.2% |
18.3% |
|
| Total |
3.1% |
4.5% |
12.4% |
20.0% |
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|
|
|
|
|
| Share of national adjusted gross income |
1.8% |
3.8% |
7.9% |
13.6% |
|
| Share of population |
1.2% |
2.9% |
6.4% |
10.5% |
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| Estimates of tax paid in the year 2016. Dollars in billions. |
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