'Deliberate Deception'? Obama Slammed for Surtax

July 23, 2009— -- President Obama's endorsement of a health care surtax for the richest Americans has renewed criticism of the proposal, including from the man who once lorded over the nation's increasingly complicated tax code.

Former Treasury Secretary Paul O'Neill, a consultant to the financial firm Blackstone Group, called the surtax "deliberate deception."

O'Neill would be among the estimated 400,000 Americans affected by the proposed 5.4 percent surtax but he cited policy objections, not personal finance concerns, for his opposition.

"I have been saying for years that the tax code is proof positive that we are not an intelligent people … There was a more than 10,000 page tax code when I was the secretary of the Treasury. So President Obama's idea to add another surtax is just more of the same. From an individual point of view the thing that matters is, what is your total tax bill," O'Neill wrote in an e-mail to ABCNews.com.

"If a surtax for medical care is a good idea, why don't we have a surtax for national defense? Agricultural subsidies? Housing subsidies? Medical research? Education? The White House operations including the chef? Pay for the members of Congress?" he said. "The surtax idea is a coverup for a rate increase. Perhaps it is true that the people who will pay the tax are too stupid to understand what is happening to them, otherwise how can you explain how a very intelligent president would advocate this deception?"

"I will not make a case against higher taxes but I am offended by deliberate deception," he said. "...[T]he current tax code is unenforceable because of its complexity. If a clean code caused my taxes to increase that would be fine with me."

In a primetime press conference last night, Obama voiced support for levying a surtax on families with incomes above $1 million a year..

"To me, that meets my principle that it's not being shouldered by families who are already having a tough time," he said.

Overall, wealthy Americans in some states will take bigger hits than others if the surtax is made law.

Take for instance, Eugenia, a California homemaker whose husband works in finance. The Bay Area woman, who asked that her last name not be used, said her husband's income usually tops $1 million per year.

California taxes its top income earners more than 10 percent, meaning that between state taxes, federal taxes, Medicare taxes and the proposed health care surtax, the couple would face a total tax rate of more than 56 percent on part of their income.

"It's very sad, because my husband works almost 12 hours per day and can take only two weeks of vacation, and then he's getting less than half of what he's working for," Eugenia said. "On top of everything, we're going to pay for everybody else's health insurance."

The proposed health care surtax now making its way through Congress is a three-tiered plan requiring a 5.4 percent surtax for couples with an adjusted gross income of more than $1 million and individuals with an AGI of $800,000. Households with an AGI between $350,000 and $500,000 would face a 1 percent surtax and those with an AGI between $500,000 and $1 million would face a 1.5 percent surtax.