Monday, November 02, 2009

Disincentives from Reform: House Edition

In my Sunday Times column, I discussed the marginal tax rates implicit in the Senate Finance Committee version of the health reform bill. CBO has just released some numbers on the version of health reform being considered in the House of Representatives.

The bottom line: The implicit marginal tax rates are even higher in the House bill.

If you are interested in a more specific comparison, here is what I wrote about the Senate Finance bill on Sunday, with the new numbers for the House bill added in brackets:

A family of four with an income, say, of $54,000 would pay $9,900 [$6,200] for healthcare. That covers only about half [a third] the actual cost. Uncle Sam would pick up the rest.

Now suppose that the same family earns an additional $12,000 by, for example, having the primary earner work overtime or sending a secondary worker into the labor force. In that case, the federal subsidy shrinks, so the family’s cost of health care rises to $12,700 [$10,000].

In other words, $2,800 [$3,800] of the $12,000 of extra income, or 23 [32] percent, would be effectively taxed away by the government’s new health care system.

And remember: This implicit marginal tax hike of 32 percent is added on top of the explicit marginal tax rate the family already faces from income and payroll taxes.