By Stephen Ohlemacher, Associated Press Writer
WASHINGTON (AP) — The typical family would be spared higher taxes from the House Democratic plan to overhaul health care, and their low-income neighbors could come out ahead.
Their wealthy counterparts, however, face big tax increases that could eventually hit future generations of taxpayers who are less wealthy.
The bill is funded largely from a 5.4% tax on individuals making more than $500,000 a year and couples making more than $1 million, starting in 2011. The tax increase would hit only 0.3% of tax filers, raising $460.5 billion over the next 10 years, according to congressional estimates.
But unlike other income tax rates, the new tax would not be indexed for inflation. As incomes rise over time because of inflation, more families — and more small business owners — would be hit by the tax.
"Twenty years from now, we're going to see more and more small businesses ensnared into paying higher taxes," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.The tax would hit only 1.2% of taxpayers who claim business income on their returns, according to the estimates by the nonpartisan Joint Committee on Taxation. But that percentage would grow as business owners' nominal incomes rise with inflation.
In 2011, a family of four with an income of $800,000 a year would get a $24,000 tax increase, when the new tax is combined with an increase in the top two tax brackets proposed by President Barack Obama and other scheduled tax changes, according to an analysis by Deloitte Tax. That's a 12.5% increase in federal income taxes.
A family of four making $5 million a year would see a $434,500 tax increase, about a 32% increase, according to the analysis.
"These are very big numbers and very high effective tax rates," said Clint Stretch, a tax policy expert at Deloitte Tax.