Top tax rate may soon exceed 50 percent

The Wall Street Journal reports, House Health Bill Slaps 5.4% Tax on Top Earners. The Tax Foundation calculates that adding this surcharge to existing taxes would raise the top tax rate to over 50 percent in 39 states. Click on the link to find out where your state stands in their ranking.

I believe the relevant marginal tax rate is even higher than the Tax Foundation suggests. Their calculations seem to ignore sales taxes, which are significant in many states. Because income earned will eventually be spent and thus subject to sales taxes, sales tax rates need to be combined with income tax rates to find the true tax wedge that distorts the consumption-leisure decision. Once sales taxes are included, a top earner in a typical state would face a marginal tax rate of about 55 percent.