Why the Baucus bill doesn’t help the middle class

Back to the economic case against the Baucus health-care bill. The Harvard economist Greg Mankiw looks at some new data from the Congressional Budget Office and calculates the marginal tax rate that the bill piles onto middle-class families:

According to CBO, a family of four making $54,000 would pay $4,800 for health insurance. The rest of the premium would come from government subsidies. If the family’s income rises to $66,000, the subsidy falls, and the cost of health insurance rises to $7,600. In other words, earning an additional $12,000 requires the family to pay an additional $2,800. The implicit marginal tax rate is $2,800/$12,000, or 23 percent.

Similarly, a single person earning $26,500 would pay $2,300 for health insurance, but if his income rises to $32,400, his premium rises to $3,700. This yields an implicit marginal rate rate of 24 percent.

As Mankiw notes, these increases come on top of marginal income and payroll taxes. A family of four earning $66,000 a year probably falls into the 15 percent tax bracket, meaning most if not all of those additional earnings would be taxed at the 15 percent rate. So besides the loss of $2,800 in subsidies, this hypothetical family would pay an additional $1,800 in federal income taxes…plus 6 percent, or $720, in state income taxes here in Georgia…plus 7.65 percent, or $918, in federal payroll taxes.

So our family of four is actually forfeiting more than $6,200 out of its $12,000 raise.

Now, the president has denied that forcing Americans to buy something they weren’t buying before constitutes a tax, so my guess is that he and other Democrats will try to argue that this isn’t one, either. They will say that taking away a government subsidy is not the same thing as taking away earned income. And from a purely semantic standpoint, that may be true.

The key phrase here, however, is “marginal tax rate.” Economists use this phrase to describe the taxes a worker pays on the last (or next) dollar earned. It’s important, because it factors into a worker’s decision to earn more money by working overtime, furthering his education or accepting a promotion; or an entrepreneur’s decision to start a business; or an investor’s decision to invest more money; or a company’s decision to expand. The question is: Is it worth the effort or risk?

Seen in that light, the sliding scale of subsidies absolutely represents a rising marginal tax rate, or its practical equivalent. And it doesn’t matter that some earners would nevertheless decide to make the additional effort or take on the additional risk — as long as a sufficient number of them don’t, the economy won’t grow as much as it might have. As Mankiw also notes, CBO does not factor in these potential macroeconomic changes when scoring legislation, including the Baucus health bill. So it’s not counting the full economic cost of the legislation.

The fact that these kind of marginal rate increases happen right around the median household income level — and right around the level where, the data indicate, families are having to decide whether they can afford to purchase insurance — makes a downright mockery of the idea that this plan is designed to help the middle class.

It is designed to increase the number of people dependent on government. Period.

11 comments Add your comment

Vonnie

October 12th, 2009
11:37 am

I don’t trust Baucas with anything relating to health insurance. I watched Bill Moyers Journal yesterday and if they are to be believed, Baucas has gotten 1.5 million from the insurance companies to do their bidding, so why should he come up with anything in our favor. According to that show, there are 6 lobbyists for each congressman. They are paid to distort facts so that the insurance company can continue enjoying the hugh profits they are making. Now I don’t want the government to run anything, but the insurance industry NEEDS some competition. That is the only way to control it. I’m tired of paying more and more every year for less coverage. I’m just waiting to see what my premiums will be this year. Why, because I may have to let it go. It’s not something I want to do, but I’m not rich and I have other obligations. I have been sacrificing to make these payments. I wish all the bickering and fighting about this would stop and that we could get some people who will fight for us. The congress doesn’t work for us. They are in bed with the lobbyists. How is that a democracy? I don’t care if you are a democrat or a republican. Frankly, they are the problem. Does anyone have a solution other than the ones that have been proposed?

Jefferson

October 12th, 2009
12:44 pm

We only need 1 insurance company.

pd

October 12th, 2009
12:52 pm

Its becoming more apparent that the only system that could work is a single payer system. Thats a shame, but it looks like the only solution to this problem.

jconservative

October 12th, 2009
1:10 pm

Nice spin job.

But I see the problem a little differently. No matter what gets passed & signed into law it will be expanded in the coming years. See the history of Medicare. Passed in 1965 & signed by Johnson. Then the expansion started. Nixon, Reagan, Clinton & Bush 43 all expanded the simple old country boy Medicare into the $803.1 Billion dollar program we have in this fiscal year.

“ What experience and history teach is this: that peoples and governments have never learned anything from history. “ Hegel

Churchill's MOM

October 12th, 2009
1:25 pm

For the last 2 weeks the National media has been all over Saxby Chambliss for using his PAC as a slush fund, well the AJC has finally got around to the story 2 weeks late. As a real conservative, I am worried about the future of the Republican Party so thing bit in POITICO is a ray of hope to me.

http://www.politico.com/news/stories/1009/28157.html

pd

October 12th, 2009
2:06 pm

Why would a family of 4 not have health insurance?

If you have kids, you better have coverage

Truth Serum

October 12th, 2009
2:09 pm

“See the history of Medicare. Passed in 1965 & signed by Johnson. Then the expansion started. Nixon, Reagan, Clinton & Bush 43″ –jconservative

Yeah, and it’s been such a rip roaring fiscal success just like about anything else the government gets its paws on, hasn’t it? Just throw more taxpayer dollars to “fix” it. Warning bells were rung several years ago.

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/06/09/the_coming_crisis_for_medicare/

tim

October 12th, 2009
2:48 pm

To truth serum. Yes, Medicare has been a rip roaring success if one compares the lives of seniors and workers who become totally disabled now vs. 40 years ago. Sorry its not perfect. The silence is deafening regard the abuses and missteps by private insurance company but everything touched by the govt sucks. Go figure.

Chris Broe

October 12th, 2009
3:23 pm

Rush Limbaugh is adamant that Obama didn’t deserve the Nobel Prize. Rush thinks Beyonce made an amazing video this year and should have won. Kanye West ditto’d.

Obama announced his new policy on gays in the military: “Dont T-bag, dont play taps”.

Doug

October 12th, 2009
9:19 pm

I’ve got mine. I’ve got the wife with the federal health plan. In three years I get Medicare. THE ONLY PROBLEM.. We have two adult children with chronic health problems who cannot work, have been denied medicaid , cannot even get a diaggnosis and treatment. Oh my wife’s federal job; 50%-70% of her entire take home pay goes to copays,pharmaceuticals , emergency room fees,and up front fees for lab tests and doctor fees who demand this because the kids have no insurance. Welcome to retirement when you are underinsured and have family to think about.

Bruce

October 13th, 2009
9:33 am

If the battle over healthcare reform is making you sick to your stomach, this musical parody is just what the doctor ordered! Check out “Healthcare Fighting (Kung Fu Mix)” at http://www.youtube.com/watch?v=8nc1VwJOb9Y