Dynamic Effects of the Surtaxes in the House and Senate Health Bills

This is from the IRET:

Based on static economic assumptions, the House health bill’s 5.4% of AGI surtax on high incomes is officially forecast:

  • To raise $460.5 billion over ten years;
  • To affect only about 0.3% of taxpayers, those with incomes above $500,000 ($1 million for joint filers).

In reality, we calculate that on a dynamic basis, after economic reactions to the tax, the House 5.4% AGI surtax would:

  • Depress annual GDP by about 1.7% (not factored into the official analysis) and lower the capital stock about 3.4%;
  • Reduce after-tax income for the remaining 99.7% of the population by about 1.5% across the board (so that everyone would be hurt, not just the rich);
  • Lose about 73% of its anticipated annual addition to federal income tax revenue due to lower GDP;
  • Reduce other federal revenues, resulting in a net drop in annual total federal revenues, bringing the combined dynamic loss to 115% of the anticipated static gain.
  • Reduce state and local tax revenues due to lower GDP.

On a static basis, the Senate bill’s 0.9% “Hospital Insurance (HI)” surtax on high labor incomes is officially forecast:

  • To raise $86.8 billion from 2013 to 2019;
  • To affect only a small number of individuals, those with wages, salaries, and self-employment income in excess of $200,000 ($250,000 for joint filers).

In reality, on a dynamic basis, the 0.9% labor surtax would:

  • Depress GDP and capital formation by about 0.04%;
  • Reduce the after-tax incomes of the people supposedly not touched by the “HI” surtax by about 0.04% across the board;
  • Lose 16% of its anticipated income tax revenue due to lower GDP;
  • Reduce other federal tax revenues, bringing the total offset to 27% of the expected revenue gain.

Comments (4)

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  1. Larry C. says:

    Just what we need — right in the middle of the Great Recession.

  2. Bruce says:

    You mean taxing the wealthy isn’t a free lunch? Gee.

  3. Tom H. says:

    An important principle that I have seen at the NCPA web site is: a tax on captial is ultimately a tax on labor. When you tax capital, you are hurting workers.

  4. Joe S. says:

    I assume that allowing the Bush tax cuts to expire has an impact that is even worse.