TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, October 4, 2013

Mulligan: ObamaCare's 50% Marginal Tax Rate Wrecks the Work Ethic

Wall Street Journal op-ed:  How ObamaCare Wrecks the Work Ethic, by Casey B. Mulligan (University of Chicago, Department of Economics):

The health-care law, starting Jan. 1, will begin driving up marginal tax rates—well above 50% for many.

A new wave of redistribution will arrive in America on Jan. 1, primarily thanks to the Affordable Care Act. The president's health-insurance plan forces those who hire, work and produce to pay full price for health care, while creating generous discounts for practically everyone else.

This second redistributionist wave of the Obama era will follow a first wave of tax hikes, additional unemployment benefits, food-stamp expansions, waived work requirements for welfare benefits, etc. These measures were supposed to be temporary, intended to help people cope with the recession. The recession officially ended in mid-2009, but many of the administration's measures continue.

Regardless of whether redistribution is achieved by collecting more taxes from families with high incomes, levying employment taxes on businesses, providing more subsidies to families with low incomes, or all of the above, an essential consequence is the same: a reduction in the reward for working. In a National Bureau of Economic Research paper issued in August, I quantify the combined effect of the two redistribution waves and higher payroll taxes on the financial reward for working.

The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working. ...

WSJ Chart

America absolutely must have taxes and safety-net programs, even though they reduce the reward for working. But advocates for the recent program expansions have failed to acknowledge that redistribution necessarily increases marginal tax rates and contracts the labor market. Don't be surprised if the second redistribution wave coincides with a recessionary double-dip.

(Hat Tip: Greg Mankiw.)

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I think conservatives would be smarter to admit this is a lost battle and move on.

Posted by: michael livingston | Oct 5, 2013 6:58:39 AM

I've worked with high income professional and business owners since the 70s, and tax rates do nothing to anyone's work ethic.

Tax rates do impact the desire for more aggressive tax planning, transaction planning and timing and compensation planning. And increase whining a lot.

Posted by: save_the_rustbelt | Oct 7, 2013 6:13:01 AM

Ah. The passive voice--friend of the Republicans. "payroll tax cut expires" They "expired" because the Republicans expired them as part of a prior blackmail/sabotage campaign. They even got a special dispensation from Grover Norquist to do it. If you don't believe me, google Norquist's name and "payroll tax"

As president Nixon would have said: "Mistakes were made."

Posted by: jimharper | Oct 7, 2013 4:43:55 PM

For those of us who don't want to spend $5 to purchase Mulligan's full study on NBER I'd be interested to know your perspective on what actual tax increases are caused by Obamacare?

Posted by: Rick | Oct 9, 2013 9:23:12 AM