Thursday, October 8, 2009
Jim Capretta looks at the Baucus healthcare bill and concludes that, because the subsidies phase out as income rises, it imposes an effective marginal tax rate on income of about 30% for many families. Add that figure to the income tax, the payroll tax, and the phase-out of the EITC and "the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers."
Indeed, Jim seems to understate matters, as he includes only the employee half of the payroll tax. Including both the employee and employer halves, as economic theory says is appropriate, appears to give a marginal tax rate closer to 80%. And, of course, many states impose income and sales taxes as well, and these would further raise the overall marginal tax rate. Jim was doing a rough back-of-the-envelope calculation.
I hope some Congressman asks CBO to do a more thorough analysis of the issue. Given all the income-linked programs already in existence and now being contemplated, what would effective marginal tax rates be for typical families? This is surely a question that needs answering before Congress can cast an intelligent vote on the healthcare bill.