How Much Do ‘Surtax Returns’ Already Pay in Federal Income Taxes?

Published January 10, 2010

The Tax Foundation has received requests as to the amount of federal individual income taxes that are paid by those who would be affected by the proposed surtax in the House health care bill.

The top 1 percent of tax returns remit approximately 40 percent of federal individual income taxes. The surtax that has been proposed would not affect all tax returns in the top 1 percent … only a sliver of it. In fact, the surtax would affect only approximately 0.3 percent of all tax returns.

Share of Tax Returns Share of Adjusted Gross Income Scenario 1: Share of Tax Under 2010 Law Extended Scenario 2: Share of tax under Scenario #1 except tax cuts expire for high-income tax returns Scenario 3: Share of tax under Scenario #2 plus 5.4% surtax proposed in House bill
SURTAX RETURNS 0.35% 13.82% 27.63% 32.15% 35.60%
NON-SURTAX RETURNS 99.65% 86.18% 72.37% 67.85% 64.40%

On the other hand, as the table below shows, while the number of tax returns that would be affected by the surtax is relatively small, those tax returns make up a significant fraction of income and pay a disproportionate share of the current tax bill. For example, if the Bush tax cuts were fully extended into 2011, those in this “surtax” category would pay approximately 27.6 percent of federal individual income taxes.

If the tax cuts are extended for everybody except those at the top, these “surtax returns” would be paying more than 32 percent of all federal individual income taxes. Finally, if the surtax were to go through on top of the expiration of the Bush tax cuts for high-income tax returns, those returns affected by the surtax would be paying 35.6 percent of federal individual income taxes.

The 5.4 percent surtax on adjusted gross income (AGI) proposed in the House bill would be levied on joint returns with AGI of $1 million or more ($500,000 for single returns).

Gerald Prante ([email protected]) is senior economist at The Tax Foundation in Washington, DC.