DEM HEALTH RX A POI$ON PILL IN NY

Congressional plans to fund a massive health-care overhaul could have a job-killing effect on New York, creating a tax rate of nearly 60 percent for the state's top earners and possibly pressuring small-business owners to shed workers.

New York's top income bracket could reach as high as 57 percent -- rates not seen in three decades -- to pay for the massive health coverage proposed by House Democrats this week.

The top rate in New York City, home to many of the state's wealthiest people, would be 58.68 percent, the Washington-based Tax Foundation said in a report yesterday. .

That means New York's top earners, small-business owners and most dynamic entrepreneurs will be facing new fees and penalties.

The non-partisan think-tank calculated the average local tax rate in New York State at 1.7 percent, and combined it with the 8.97 percent that high-bracket state taxpayers will shell out in 2011, when the health care plan is set to take effect. Tack on the 39.6 percent federal tax rate, 2.9 percent for Medicare and 5.4 percent for the health care "surtax," and the figure is 56.92 percent for the Empire State.

In New York City, the top tax rate is 3.65 percent, making the Big Apple's top combined rate even higher.

The $544 billion tax hike would violate one of President Obama's ironclad campaign promises: No family will pay higher tax rates than they would have paid in the 1990s.

Under the bill, three new tax brackets would be created for high earners, with a top rate of 45 percent for families making more than $1 million. That would be the highest income-tax rate since 1986, when the top rate was 50 percent.

The legislation is especially onerous for business owners, in part because it penalizes employers with a payroll bigger than $400,000 some 8 percent of wages if they don't offer health care.

But the cost of the buy-in to the program may be so prohibitive that it will dissuade owners from growing their businesses -- a scary prospect in the midst of a recession.

Obama took to the airwaves yesterday with ads and
TV interviews promoting the need to reform health care.

As a Senate health committee passed a different version of a health-care reform bill - a milestone for the issue - Obama said on NBC, "The American people have to realize that there's no such thing as a free lunch."

And in a Rose Garden speech, he said the "status quo" on health care is "threatening the financial stability of families, of businesses, and of government. It's unsustainable, and it has to change."

Asked if Obama supports the surtax on wealthiest Americans even though it would break a campaign pledge, White House spokesman Robert Gibbs said only, "It's a process that we're watching."