The Biden administration’s Build Back Better Act, according to the latest version in the U.S. House, would tax Americans earning $400,000 and above higher than all of its foreign competitors, hitting residents in blue states the hardest, nonpartisan analysts say.
The top tax rates on personal income would exceed 50% in all states and Washington, D.C., including states with no personal income tax.
According to the plan, the average top tax rate on personal income would reach 57.4% – giving Americans the highest tax rate out of residents living in 38 member countries of the Organisation for Economic Co-operation and Development, the Tax Foundation found.
The top marginal tax rate is scheduled to increase from 37% to 39.6% in 2026, with the top marginal tax rate on personal income at the federal level increasing to 51.4%, the foundation notes.
These rates exclude state and local income taxes, the foundation adds.
If the average top marginal state-local tax rate of 6% were added, the top rate levied on personal income would be 57.4%, more than any other tax levied on top earners in the developed world.
The calculations, the Tax Foundation notes, “assumes the deduction for state and local taxes remains capped.” If the caps for state and local tax deductions were lifted, the average top marginal state-local tax rate would fall to 54%, it says.
Residents in eight states and the District of Columbia would pay the most – with top tax rates exceeding 60%. Wealthy New Yorkers would pay the most at 66%, followed by Californians at 64.7%. The next highest income taxes levied would be in New Jersey at 63%, Hawaii and Oregon 62 at 62%, Minnesota at 61%, and Maryland at 60.4%.
The seven states with no personal income tax – Alaska, Florida, Nevada, Washington, Wyoming, South Dakota and Texas – would have a top tax rate of 51.4%.
“Raising the top marginal tax rate on ordinary income to the highest in the OECD will damage U.S. competitiveness,” the Tax Foundation said. “It will also reduce incentives to work, save, invest, and innovate, with broad implications for the U.S. economy.”
The nonpartisan Committee for a Responsible Federal Budget estimates the latest version of the bill totaling at least $2.4 trillion in spending will add $200 billion to the national deficit over 10 years.