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261 IRET Congressional Advisory 1 (2010)

handle is hein.taxfoundation/iretcgadv0258 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. January 19, 2010 Advisory No. 261 DYNAMIC ANALYSIS OF SURTAXES IN THE HOUSE AND SENATE HEALTH BILLS Executive Summary The paper examines two proposed surtaxes on upper-income individuals in the House and Senate versions of the health care bill. The official budget scores of the bills claim the burden of the surtaxes would fall only on the rich. These claims are based on unrealistic static economic assumptions. In reality, the bills would depress GDP, and everyone would feel the effect of the taxes, not just the rich. Much less revenue would be raised than forecast. The bills would increase the federal deficit. State and local budgets would be hit too. If paired with expiration of the portions of the Bush tax cuts that had applied to upper-income taxpayers, the adverse economic effects would be even worse. 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. g~*m A3A g.m S I 66. 6 A~