Paul L. Caron
Dean


Wednesday, October 14, 2009

Holtz-Eakin: Baucus Bill Would Impose 23% Marginal Tax Rate Increase on Middle Class

Following up on last week's post (80% Marginal Tax Rates After Health Care Reform), there is an op-ed in today's Wall Street Journal by former Director of the Congressional Budget Office Douglas Holtz-EakinThe Baucus Bill Is a Tax Bill; Middle-Class Families Would Get Hit With a Double-Digit Increase in Their Marginal Tax Rate:

Most astounding of all is what this Congress is willing to do to struggling middle-class families. The bill would impose nearly $400 billion in new taxes and fees. Nearly 90% of that burden will be shouldered by those making $200,000 or less.

It might not appear that way at first, because the dollars are collected via a 40% tax on sales by insurers of "Cadillac" policies, fees on health insurers, drug companies and device manufacturers, and an assortment of odds and ends.

But the economics are clear. These costs will be passed on to consumers by either directly raising insurance premiums, or by fueling higher health-care costs that inevitably lead to higher premiums. Consumers will pay the excise tax on high-cost plans. The Joint Committee on Taxation indicates that 87% of the burden would fall on Americans making less than $200,000, and more than half on those earning under $100,000.

Industry fees are even worse because Democrats chose to make these fees nondeductible. This means that insurance companies will have to raise premiums significantly just to break even. American families will bear a burden even greater than the $130 billion in fees that the bill intends to collect. According to my analysis, premiums will rise by as much as $200 billion over the next 10 years—and 90% will again fall on the middle class.

Senate Democrats are also erecting new barriers to middle-class ascent. A family of four making $54,000 would pay $4,800 for health insurance, with the remainder coming from subsidies. If they work harder and raise their income to $66,000, their cost of insurance rises by $2,800. In other words, earning another $12,000 raises their bill by $2,800—a marginal tax rate of 23%. Double-digit increases in effective tax rates will have detrimental effects on the incentives of millions of Americans.

https://taxprof.typepad.com/taxprof_blog/2009/10/holtzeakin-baucus-bill.html

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Comments

Remember if you oppose this you are a bad person who wants to see people die.

Posted by: EvilDave | Oct 14, 2009 11:14:03 AM

But how much would this family pay for health care anyway? The only difference is that the money is going to the government (which is a valid arguement in it's own right). I would have to imagine that a plan that doesn't have a significant marginal tax increase upon the middle class would just constitute an Obama version of FDR's social security.

Perhaps I'm missing something? Perhaps it has become accepted practice that the middle class should expect free lunches?

Posted by: Kyle | Oct 14, 2009 12:11:50 PM

Fixing this and other unrealistic aspects of the health care bill will cost hundreds of billions of dollars. Too bad the CBO can't score the politically probable end-game, just as it was not allowed to score the Bush tax cuts as not expiring.

Posted by: AMTbuff | Oct 14, 2009 4:02:24 PM

Can't we just shoot them all now and put them out of our misery?

Posted by: jon reid | Oct 14, 2009 6:16:21 PM

I am one of the people with a "Cadillac" health insurance plan that costs $30,000 for a family of 4 -- as I am self employed, I pay this myself. With this increase in cost, it will cost me $42,000 per year. At that rate, it is much cheaper for me to self insure. It's cheaper to pay the fine AND self-insure.

Posted by: Concerned Citizen | Oct 14, 2009 8:38:06 PM

"Remember if you oppose this you are a bad person who wants to see people die."
- - - - -

What if I only want to see some certain specific people die? Do I need to declare this up front? Is there a form? I'd just hate to get into a situation later where someone's claiming that I've waived my right regarding choosing whose death I get to see because I didn't get my declared choice properly preregistered. I'm surprised they didn't cover this more clearly in the brochure; the motivational differences between choosing to watch death qua death versus choosing to watch Bill die seem very significant, to the point of indicating completely different markets.

Posted by: bobby b | Oct 14, 2009 8:59:03 PM

Hmmm
Given that the Fed has given away well over 10 trillion of our money (just in the last 18 months)I think it is only right that the Fed foot the bill for medical care for every man woman and child in America for the next decade or so. Oh and while they are at it they should forgive any and all "debt" and the corrosponding interest that they have charged Americans for "borrowing" (stealing) our own money.

Posted by: DDearborn | Oct 14, 2009 9:15:30 PM

Hey, Jon has an excellent idea.

Posted by: David R. Block | Oct 14, 2009 9:31:20 PM

This is bad. When was government ever done a good job managing money?

Posted by: myna | Oct 14, 2009 9:31:24 PM

One of the net effects of all the current government shenanigans with new taxes (be they local, state or federal) is going to be the rapid growth of cash only transactions and even barter.

Watch for attempts to make cash transactions more difficult if enough of these ill-conceived new taxes actually get passed. One of the first things I can see happening would be a dramatic reduction in the level of cash deposit that banks must report (currently at $10k).

Posted by: SFC174 | Oct 14, 2009 9:33:04 PM

Oh, that's easy to fix. They'll just add an amendment to make it illegal for companies to pass the costs along to their customers /sarcasm

(Don't snicker. They actually talked about doing that on a tax bill last year.)

Posted by: Orion | Oct 14, 2009 11:00:04 PM

lets play the game called spot the shill!.. hm this is a tough one. There should not be a single red cent in tax increases to ANYONE in ANY class, period, end of discussion. You want the economy fixed? STOP WAGING POINTLESS ENDLESS WARS BASED ON LIES AND FABRICATIONS. Retract the useless lumbering american empire that is leading the direction of where all empires inevitably go, in the "graveyard of empires", no less (afghanistan for the unenlightened) Where are these 80,000 troops going to come from? anyone else feel a draft? It is time to purge 99% of senate and congress and make lobbying groups illegal (Especially those working for foreign governments)

Posted by: Kevin | Oct 14, 2009 11:26:15 PM

Coming from somebody who is facing a 58% marginal rate if everything they are discussing is passed, I fail to have any sympathy for others having to kick in some as well. Until we get all Americans to have some "skin in the game", politicians wil be able to buy votes with our tax dollars.

Posted by: Metz | Oct 15, 2009 3:08:29 AM

Re: Orion's comments, brother you are the unenlightened. Graveyard of empires? Whose? Don't say Alexander, he conquered every bit of that area he set foot in a brilliant small wars campaign; don't say the British, who although encountering tactical rebuffs got exactly what they wanted: no Russia in Afghanistan, security for India. The Soviets had many, many issues besides the Afghan war, but it surely did not help them. The assistance of the United States and Arab volunteers certainly helped the locals fend of the incompetent Soviets.

BTW, drafts let in people who don't want to be in the Army, so we don't do them. The all-volunteer force is doing just fine, so don't worry.

I do, however, agree with your purge comment. Bill Whittle suggests a buyout of $945M. Sage advice.

Posted by: chuck | Oct 15, 2009 3:58:35 AM

Remember if you oppose this you are a bad person who wants to see people die.

Posted by: EvilDave | Oct 14, 2009 2:14:03 PM

And a rascist. Because being concerned with supporting yourself without the help of the gov't is a racial construct.

Posted by: Bandit | Oct 15, 2009 5:20:39 AM

The ending sentence of the prof's piece is most telling, in my opinion: "Double-digit increases in effective tax rates will have detrimental effects on the incentives of millions of Americans." Liberal "social engineers" NEVER consider the cost of their experiments; it's always enough (according to them and their media/political enablers) that their intentions are good. The notion that their policies will result in incentives (and dis-incentives as well) is so foreign to them you may as well be speaking Martian. In addition, if you attempt to point out how unintentional consequences (unintentional to them, that is, although reasonably anticipated by anyone taking a conservative cost/benefit approach) may, in fact, make matters worse and not better, you are immediately labelled a (insert ad hominem attack here).

Posted by: njoriole | Oct 15, 2009 7:11:35 AM

I guess I was mistaken to believe that some sort of productive conversation could occur about the points Holtz-Eakin raised, even considering the audience I would suspect Professor Caron posts too. I guess I was wrong.

Posted by: Kyle | Oct 15, 2009 10:28:27 AM

The tax on device manufacturers will shut down thousands of smaller ones, and offshore the rest. It won't be profitable to make or sell devices here anymore, so they won't. Why should they?

Needed a pacemaker, or a stent? Too bad. Boston Sci, Guidant, all of those...they're going to offshore or shift operations if that passes. Because they want to actually make a profit. MILLIONS of jobs will be lost.

Posted by: Mike R. | Oct 15, 2009 10:47:43 AM

Looking at this from the perspective of a working mom, I want to point out that what ALL these various taxes, "fees", etc will end up doing is drive married educated, professional women out of the workforce. Childcare is expensive, whether it's little kids or after-school care. Women, even well paid professionals, usually earn the smaller paycheck in a 2-parent household. If you have two decent professional incomes in expensive urban areas, it's real easy to start hitting the phase-outs for child tax credits and dependent care credits, and the smaller paycheck is the one that "bumps" you over the line. Child care can cost $1-2K per month per kid so working moms need to make very high salaries to make this remotely worth your time. So, take the fact that your smaller salary ends up costing you the child tax credit, worth several thousand, then you have to pay thousands in daycare/childcare, then they were talking about phasing out charitable donation deductions at higher income levels, and possibly the home mortgage interest deduction as well, then add the higher taxes for health insurance and it quickly adds up to "what's the point"? And women will leave the workforce. I did, for these very reasons. My almost 90K a year job was netting our family about $20K a year after taxes, child care, and lost deductions because we're "rich". And that's BEFORE this new stuff. Doesn't anyone else thinks it's appalling to have a system of government that actively discourages educated people from working? And it makes me wonder when they say that raising whatever tax is going to generate "x" amount of revenue, do they consider the individuals that make the very rational decision to leave the marketplace?

Posted by: Barbara | Oct 15, 2009 11:29:59 AM

Orion, you are exactly right. Why should the middle class pay more for anything when the US Government is wasting trillions of dollars on two pointless, endless wars? Nobody can win in Afghanistan. Here's some advice for the US Gov't: Close our military bases in most of the world, make lobbying illegal, especially lobbying from foreign governments, and stop all foreign aid. Let's fix this country first or there won't be any aid left to give!

Mike R., if people stayed home to raise their own kids, society would have fewer problems, the future would have fewer prisoners, and the unemployment rate would be cut. I don't care if it's the father, the mother, the grandparents, or another family member who raises the kids, but someone needs to be raising kids. I don't have much sympathy for people who work just to pay for childcare.

Posted by: Zippy | Oct 19, 2009 3:44:04 PM