The real wallop of raising taxes on the rich

NEW YORK (CNNMoney.com) -- If President Obama's plan for the Bush tax cuts is enacted, the wealthiest residents of New York City would feel real tax rates of 50.7%, highest of any place in the country.

Right behind is Hawaii, where residents would pay 49.7%.

Those are some of the findings from a report issued Wednesday by the Tax Foundation calculating the so-called marginal effective tax rates under the Obama proposal.

The Obama proposal would let the 2001 and 2003 tax cuts expire for families earning more than $250,000 and individuals earning $200,000 and up. The top two tax rates would revert to where they were in the late 1990s: The 35% rate would go to 39.6% and the 33% rate would go to 36%.

The research group attempts to paint a fuller picture of what top earners would pay by including state and local income tax rates on top of federal rates.

California residents can expect a rate of 49.4%, with Vermont at 48.8% Maryland at 48.6% and New York state at 48.4% following close behind, according to the Tax Foundation. (New York City was the only local jurisdiction the group calculated separately; it otherwise blended local taxes into each state number.)

Overall, residents of 15 states can expect tax rates in excess of 47.3%.

The Tax Foundation arrived at its marginal effective tax rates by adding the expected federal rates to those already on the books in state and local municipalities.

There are important caveats. For one thing, the rates listed in the report are those faced by the highest earners on their self-employment income -- that means income that comes in the form of business profits or investment revenue.

And a 50% marginal effective tax rate doesn't mean that top earners will be paying 50% of their income to local, state and federal governments. Instead, the rate applies only to income made over and above the top tax bracket.

Finally, of course, some instead collect sales tax on purchases, a tax not included in the study.

The Tax Foundation analysis also found that if a plan favored by Republicans to extend all the Bush tax cuts becomes law, the range of top marginal tax rates would be approximately 5 percentage points lower in each state.

Under the rival Republican plan, Hawaii's rates are set at 44.3%, California at 44.1%, Vermont at 43.3%, Maryland 43.1% and New Jersey at 43.0%.

And while this it is too late for states to change their tax rates for 2011, two cash-strapped states -- Illinois and Washington -- are toying with raising their income tax rates to cover future budget shortfalls.