Study: 50% Tax Rates Coming for California and New York

Posted: Dec 06, 2012 11:39 AM
A new study out from economists at Lynchburg College calculates the effective top marginal tax rates on various forms of income. While most of the media focuses on the federal top marginal income tax rate, Professors Gerald Prante and Austin John have factored in all of the taxes both nationwide and in each individual state and found that the average rate across the country will approach 50% - surpassing it in three different states.

Nationwide, the average top marginal rate will rise from 41.8% to 47.8%. In New York, California and Hawaii, the top marginal income tax rate on high income-earners will be in excess of 50%. Investment taxes would rise astronomically. The average nationwide dividends tax rate will soar from 19% to 47.9%, exceeding 50% in seven states. Capital gains tax rates will also rise to over 30% in nine different states.

Some of the key provisions that are often left unaccounted for are higher Medicare taxes being phased in due to Obamacare, and the extra Obamacare tax on "unearned income" that will play into the tax hikes on savings and investments.

These are the policies that President Obama is pushing for. He's willing to let rates rise on lower- and middle-class Americans in order to get his soak-the-rich rates. The investment taxes are of particular concern - letting the dividends and capital gains rates soar would hurt disproportionately mor than the taxes on labor income.

As the Tax Foundation reported yesterday, even if Obama is truly committed to a massive tax hike, raising tax rates on capital gains and dividends are the second-most harmful way of raising taxes:

When Tax Foundation economists modeled the long-term effects of increasing the capital gains top rate to 20 percent and letting the tax rate on dividends revert to 39.6 percent for people in the top two brackets, they found that this policy would lower GDP by 2.15 percent and that it would not raise any new tax revenues because of its depressive effects.

Progressives have pined in the past for higher tax rates for "the rich." While their analysis typically misses that marginal tax rates are much higher than the federal statutory rates, this study drives that point home. Next year, we're going to cross the 50% threshold on top income-earners. How much higher will progressives try to push it?

Hat tips: Political Math, Hot Air's Erika Johnsen