Today, Sen. John Thune (R-SD) appeared on the Senate floor to decry the health care bill that has emerged in the House. During his speech, Thune claimed that “most” Americans and small businesses would pay “fifty cents of every dollar in taxes” if the House’s plan to implement a surtax were adopted:
Frankly, if you think about most Americans and most small businesses, when you start paying half, or fifty cents of every dollar in taxes, you’re getting to a point where it’s going to be very difficult for these businesses to say, you know, “why should I continue to try to create jobs?”…I think that’s the risk that we run with the job creators, the small businesses in the country, who are the economic engine and create as many as two-thirds to three-quarters of all the jobs in our economy.
First, let’s dispense with a few myths. The surtax would only affect 1.3 percent of taxpayers, not “most.” Only 4 percent of taxpayers that make any income at all from small businesses would feel the surcharge, which as Citizens for Tax Justice noted, should have “no effect on their hiring decisions.”
But Thune also seems to be a bit hazy on the concept of marginal tax rates (or he’s deliberately obfuscating the issue) when he says “fifty cents of every dollar” will be taxed. For those richest one percent of taxpayers, the surtax would be assessed on every dollar after the first one million dollars. In fact, right in the House bill, it says that the surtax will be on income “as exceeds $1,000,000.” It’s the 1,000,001 dollar that gets taxed at 5.4 percent, not the preceding one million.
Jonathan Schwartz at A Tiny Revolution calculated the actual amount that a millionaire will pay in higher taxes, responding to the notion that “a family earning a million dollars a year should now cough up $54,000 of that” due to the surtax:
Someone making $1,000,000 per year wouldn’t pay $54,000 more in taxes under this bill. They’d pay $9,000. That’s because the 5.4% surcharge would only apply to someone’s income over $1,000,000. Your tax bill wouldn’t suddenly go up by $54,000 if one year you made $1,000,000 instead of $999,999.
Thune is also ignoring the fact that top marginal tax rates in this country have historically been far higher than the rate proposed by the House, even with the surtax factored in. Of course, this is all coming from a senator who like to think of economic initiatives in terms of how many times the required money could be wrapped around the Earth.