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Taxing Adjusted Gross Income Instead of Taxable Income

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Publication Date: August 2009

Publisher(s): Tax Policy Center

Author(s): Jacob Goldin; Eric Toder

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Tax Distribution and Economic Trends; Taxes and Social Programs; Fiscal future; Taxes and Health Insurance

Type: Report

Abstract:

The House leadership has proposed to finance health care reform with a surtax on adjusted gross income (AGI) of high-income individuals, while the president's budget would increase the two top marginal tax rates on taxable income. Income taxed at statutory marginal rates is 58 percent of AGI for all taxpayers but only 46 percent of AGI for taxpayers with income over $1 million. While personal exemptions and deductions account for most of the difference between the two tax bases for the population as a whole, capital gains and qualified dividends make up most of the difference for very high income taxpayers.