Obama's Prescription for Low-Wage Workers: High Implicit Taxes, Higher Premiums

Cato.org ^ | January 13, 2010 | Michael F. Cannon

[dajeeps]

House and Senate Democrats have produced health care legislation whose mandates, subsidies, tax penalties, and health insurance regulations would penalize work and reward Americans who refuse to purchase health insurance. As a result, the legislation could trap many Americans in low-wage jobs and cause even higher health-insurance premiums, government spending, and taxes than are envisioned in the legislation.

Those mandates and subsidies would impose effective marginal tax rates on low-wage workers that would average between 53 and 74 percent— and even reach as high as 82 percent—over broad ranges of earned income. By comparison, the wealthiest Americans would face tax rates no higher than 47.9 percent.

Over smaller ranges of earned income, the legislation would impose effective marginal tax rates that exceed 100 percent. Families of four would see effective marginal tax rates as high as 174 percent under the Senate bill and 159 percent under the House bill. Under the Senate bill, adults starting at $14,560 who earn an additional $560 would see their total income fall by $200 due to higher taxes and reduced subsidies. Under the House bill, families of four starting at $43,670 who earn an additional $1,100 would see their total income fall by $870.

[muawiyah]

Democrats ain’t none too good at maf. Leastwise at’s what we ala’s say.

[dajeeps]

You’re right. I don’t understand how they think anyone could survive a 174% tax rate. It’s absurd.

[ColdOne]

I do not understand how they plan to keep people from being so upset. With exeptions for Amish, Unions ect. They have to know that alone is going to cause a major rage of some sort.

Have they thought this all the way thru???

[GailA]

They haven’t seen the fury of the gray hairs when they find out their Medicare is cut 8% and the increase in premiums, No COLA for 3-4 years!

[ColdOne]

That is what I can't get past. The fury that will come of all this. That is why I ask, have they thought this thru?

[almost done by half]

It appears we misunderstood. It wasn’t “Hope & Change” it was “Hope FOR Change”.

[dajeeps]

We got the change alright, and that’s about all we’ll have left out of our paychecks.

On the PDF that has the whole analysis, it shows that a family of 4 making ~ $45k/yr will have marginal tax rate of 73%. The House bill is even worse at 82%. The current rate is about 42%.

They plan to take almost all of thier money.

[BenKenobi]

How do you survive on 173 percent effective taxation?

1. Hide income sources. 173 percent on 10 percent of your income works out to be an effective tax of about 17.3 percent.

2. Non-taxable transactions. Barter, etc. Trade services for other services.

3. Increasing income. If your income is going up, then the taxation on 173 percent of last’s years can be paid with your new income.

4. Offloading expenses. Things you would otherwise have to pay for get loaded back onto the government (ie, unemployment, health care, food stamps etc).

Generally people adopt some form of the following survival strategies, especially when they are just getting started and they have minimal income, but high obligations. There are many ways in which fees can total over a 100 percent of a person’s income, at least up here in Canada.

[almost done by half]

I’ve heard some of these numbers as well. It is going to reach the point where people just don’t pay some or all of their taxes. Fraud will be rampant. Our historically high
citizen honesty in tax preparation is going to mirror Russia before they had to revamp their tax laws to reduce tax fraud. Once people get to this point it is almost impossible for citizens to ever have faith in their existing government again.