NCPA - National Center for Policy Analysis


August 6, 2009

Draft legislation in the House of Representatives to overhaul the health care system contains two proposals that aim to soak the rich.  However, these tax hikes will drench small businesses, say Biff Jones, a graduate fellow, and Pamela Villarreal, a senior policy analyst, both with the National Center for Policy Analysis.

According to a recent House version of the health care bill currently working its way through Congress:

  • Individuals with adjusted gross incomes above $280,000 ($350,000 for families) will pay a surtax of 1 percent on their income tax bills.
  • Individuals with incomes above $400,000 ($500,000 for families) will pay a surtax of 1.5 percent.
  • Individuals above $1,000,000 will pay a surtax of 5.4 percent.

The surtax would rise even higher in 2013 if these rates fail to generate the revenue necessary to fund new health care spending. 

With the surtax and state taxes:

  • A small business in Texas would pay a maximum marginal tax rate of 47.9 percent (the lowest in the nation).
  • A small business in Oregon would pay a maximum marginal tax rate of 58.9 percent (the highest in the nation).

About 33.5 million workers are employed by the small businesses that would pay these higher tax rates, according to the National Federation of Independent Business.

Under the health care reform bill proposed in the House, small businesses would also face financial penalties if they don't provide health insurance to their employees.  Employers will be required to offer qualifying coverage and pay at least 72.5 percent of each worker's individual premiums and at least 65 percent of family premiums.  Except for the smallest businesses, penalties will be imposed for noncompliance:

  • Businesses with annual payrolls of $250,000 to $300,000 would pay a penalty equal to 2 percent of their payrolls if they do not provide qualifying employee insurance.
  • Businesses with $300,000 to $350,000 payrolls would be penalized 4 percent.
  • Businesses with $350,000 to $400,000 payrolls face a 6 percent penalty.
  • Businesses with annual payrolls exceeding $400,000 would pay 8 percent.

Adding the health insurance penalty, surtaxes and return to pre-Bush tax rates to state tax burdens:

  • A small business in Texas would pay up to 55.9 percent of the last dollar earned to the government (the lowest rate in the nation).
  • A small business in Oregon would pay up to 66.9 percent (the highest rate in the nation).

Source: Biff Jones and Pamela Villarreal, "Soaking the Rich and Drenching Small Business," National Center for Policy Analysis, Brief Analysis No. 671, August 6, 2009.

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