Health Care and Taxes: 10 Worst States for the Rich

These states could see the top combined tax rates if health surtax is passed.

ByABC News
July 17, 2009, 3:32 PM

July 20, 2009— -- The health care surtax touted by some members of Congress would bring a heftier tax bill to the richest Americans, but depending on where they live, some will take bigger hits than others.

Take for instance, Eugenia, a California housewife 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.

According to a report this month by the Tax Foundation, a tax research group based in Washington, D.C., wealthy taxpayers in 39 states could pay a top tax rate higher than 50 percent by 2011. The report combined states' average local tax rates, top state and federal rates with the 2.9 percent Medicare tax and the proposed 5.4 percent health surtax.

Just more than 400,000 households nationwide would be hit by the 5.4 percent surtax, according to Tax Foundation projections. But opponents of the surtax still worry that the additional tax burden would have a disastrous impact.

"We're looking at serious economic consequences -- tax avoidance, people leaving these states, a shifting income capital game," said Rea Hederman, Jr., a senior policy analyst with the conservative Heritage Foundation. "The fact is [that] we still have trillions of dollars in deficit. We can't tax the rich forever."

Surtax defenders, meanwhile, are singing a different tune.

"The public pretty much thinks the richer people in America ought to pay their fair share; they don't think they're paying their fair share," House Majority Leader Steny Hoyer said recently on ABCNews.com's "Top Line."

Under the plan, according to projections done for the Associated Press:

Here are, according to the Tax Foundation's report, the 10 states that would see the highest combined top-income tax rates if the surtax becomes law.

1. Oregon: 57.54 percent

Why is Oregon at the top of the list? Both state taxes and municipal income taxes are to blame. Oregon's legislators recently approved provisions for a new tax income rate of 10.8 percent for individuals with taxable incomes higher than $125,000 and an 11 percent top rate for the state's wealthiest. Lawmakers said the increase would raise $488 million to help balance the state budget.