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Legacy Content / GLOSSARY: TAXES

Surtax On The Wealthy

As lawmakers consider ways to pay for health reform, use our glossary of potential offsets to get caught up fast.

July 23, 2009

Updated at 4:29 p.m. on Nov. 24 to reflect continuing legislation.

Definition

A surtax ("surcharge" is the language used in the House bill) on households earning more than certain income benchmarks would raise funds for health care subsidies for middle-income families. Under the Senate plan, the Medicare payroll tax would be increased for high-income families.

Executive Summary

Opponents of surtaxes on the wealthy to help pay for health care argue it's an unfair burden -- on small businesses.

 

Some Republican lawmakers, including House Minority Leader John Boehner of Ohio, say the surtax would hurt small-business owners who claim their business incomes on personal tax returns. Most small-business owners still wouldn't reach the $500,000 individual income limit, though.

"It's not going to impact the majority of small businesses, but it does impact a significant chunk. Those are the small businesses that are rapidly growing typically," said Molly Brogan, spokeswoman for the National Small Business Association. "Adding an additional tax onto those companies, we think, is the wrong way to go."

Supporters of the surtax plan point out that a health care reform bill could cost more than $800 billion over 10 years, and this tax would provide a way to raise a good chunk of the needed funds.

"You're going to have to have some transferred income from people who have money to people who don't have money. It's that simple. That is what it takes to make this all work," said John Sheils, senior vice president of health policy consulting firm the Lewin Group. "While it would sting for some people, it may be the best policy choice."

Other options being discussed are the Senate’s plan to increase the Medicare payroll tax from 1.45 percent to 1.95 percent for some high-income earners.

Max Savings

The House surtax would raise $460 billion over 10 years. The Senate payroll tax increase would raise $54 billion over 10 years.

Plans

The House plan charges individuals who make more than $500,000 and couples with more than $1 million in income a surtax of up to 5.4 percent. The Senate bill would levy a payroll tax increase of 0.5 percent on families earning more than $250,000 and individuals with more than $200,000 in wage income starting in 2013.

Links

House Tri-Committee Explanation Of Surtax

National Small Business Association On Surtax

"Health Surtax Plan Might Push Rates Past Obama Pledge" CongressDaily, July 14 (subscription)

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