Sentences to ponder

On the Baucas bill, from the CBO, via Greg Mankiw:

tax rates would go up by about 22 percentage points for all families
whose income was between 100 percent and 400 percent of the poverty


That sentence was based on a flawed analysis that equates a reduction in subsidy with a tax.

Let's say person A is a high earner who pays $5,000 annually for health insurance right now, and person B is below the poverty line and has no health insurance.

Now let's say we implement a plan across persons A and B that costs on average $3,000 per person, but in order to make it available to both parties, it is offered to person B for $2,000 and person A for $4,000.

Mankiw calls the $2,000 differential between A and B a marginal tax. That is not true. The subsidy enables better outcomes because now both parties are covered, and party A is paying $1,000 less for coverage than he previously was. You can debate the fairness of this. I do think there is too much subsidization happening under the current proposals. However, to refer to this simply as a marginal tax is a partisan over-simplification.

Debate the merits, not the hot topic talking points.

Of course, it is a tax. Calling a negative tax a subsidy is not inaccurate, but it still makes it a tax.

Let's say I receive the Earned Income Tax credit because my income qualifies. My neighbor does not receive the tax credit because his income does not. Is he not paying a greater tax rate on his income than I am?

erik: there is no difference between taking away a subsidy and paying a tax when you are making a decision on the margin as to whether to earn more.


You should be ashamed of yourself. This has been debunked elsewhere. Shame.

Mankiw writes "households facing increases in marginal tax rates of 20 percentage points will not ignore them." That sounds scary, but it's not really if it only causes these households to reduce their effort by 0.1%. What's the research say the actual effect of a 20% marginal tax rate is? Is Mankiw just trying to scare people, or does he actually have a point?

I'll ignore the fact that "a 22% marginal tax rate increase" is incredibly misleading to anyone without an economics background since I don't know of a better phrase to use.

This is all a kabuki dance. The Dems will ram through their bill for simple reasons -- it vastly increases govt control, power, and corruption and will divert billions to their political base. It's all just so much organized theft. Obama is truly scum.

On pondering: the "22% increase in marginal tax rate" is very misleading to anyone not familiar with that obscure usage, as has been mentioned both on this thread and many times in the past when there's been a similar sleight of hand. For 99.9% of Americans, if you said that sentence to them they would understand it to mean something almost the opposite than what it actually does.

Indeed, if you have a usage where giving people a tax cut or better benefits can be described as an increase in the marginal tax rate, that should leap out at you as something that lends itself to confusion. There is a legitimate policy consideration here, but neither Mankiw nor Tyler does much but hint toward it without exploring the size of the effect in any depth. An effect that we have no real reason to assume would be very significant. We don't even get a suggestion of a way to look more in depth to it.

It never ceases to amaze me the kind of contortions people will twist themselves into trying to explain the inherent paradoxes they create once we move to a Progessive tax system. Schelling illustrated a simple example in the 70s - how providing a subsidy for a family with children necessarily confuses notions of fairness.

Further, for those are argue that this issue is "debunked" would you argue with a straight face that the current TANF program or the old AFTC or even the current EITC does not impose huge marginal tax rates on people? Again, the relevant question is, "how much will I keep of the next dollar earned when I change my behavior?" So, if you offer a wage subsidy, at some point it HAS to be phased out, and at those kink points, the marginal incentives to work are reduced. That is not some partisan hack analysis, it is a simple algabraic fact of the way those programs are designed.

The point Mankiw is making is that the plan as proposed will have distortionary incentive effects at the margin ... you can say it is worth it, but you cannot say it is incorrect.

wintercow20, the health care subsidies will have distortionary effects at some margins, but they will have undistortionary effects at other margins, namely those where people are losing Medicaid or SCHIP benefits but now will receive subsidies as a replacement. Once the government decided to provide health care benefits to some poor people (through Medicaid & SCHIP) there had to be higher effective marginal tax rates somewhere, and it's not obvious whether adding new health care subsidies will make the system more or less distorting overall. My guess is that it will make the system less distorting, since the new subsidies phase out more gradually than Medicaid & SCHIP do, and much of the phaseout happens at higher income levels than where most benefits phase out (especially in the more generous HELP version of the health care bill). But I'd love to see someone who knows more economics than me actually do the analysis.

This link below is not what should happen to old reviewers and absolutely not, by any means, what will happen if we just accept that medicine is owned collectively and should be run by the collective.

Nothing to see here, and all you newly rich (because Obama was only going to raise taxes on the rich) should bask in your new found prosperity.

Where is the research on how important the marginal tax rate is in influencing behavior? I would speculate that it is not that important. Employees who are earning $30,000-$40,000 per year are typically in no position to negotiate their hours. Even more so, many people at these income levels have chronic liquidity problems that increase the cost of leisure.

No, see, taxes are money the government takes to fund itself and its programs. Calling everything one spends money on that doesn't result in climax a tax bastardizes the term.

"People like Andrew," eh? The kind of people who remember campaign promises? Those kinds?

Or, did he say he wouldn't raise taxes on people making less than $250k EXCEPT to fund his favorite program?

Oh, wait, no, he in fact DID say he wouldn't raise taxes on < two fitty. Okay, you can go back to being better than me now.

I thank Tyler for the link, and the facts. But seriously; is there anyone, anywhere, that seriously believes that "health care reform" is anything other than a means to enact a massive tax increase? Are you really that gullible?

It's like Groundhog Day, annually. (1) Feds identify problem, NY Times writes articles about problem, all news outlets run with it (2) Feds say they can fix the problem and cut deficit at the same time (3) Feds say the fix is revenue neutral (4) Feds say any that any overruns identified by the CBO can be made up by a tax on 'the rich' (5) Well, ok, by 'rich' we really meant anyone with a job (6) Sure, we still need more money, but we can borrow it, stop complaining (7) ....

Oh Chris, are actual taxes going down? Care to explain that?

I know in theory increase in marginal tax rates decrease productivity. But could anyone direct me to a commonly cited paper or something of that sort proving it. I would like to read it. Not saying I disagree or agree, just doesn't seem like it is one of those real world situations.

Btw, Tanner at CATO describes the gimmickry and some of the hidden taxes. Their whole point is to confuse people, so if I were confused it could be forgiven. I'm not.

And you know that the taxes are going up simply because the bill costs money. You can say it's borrowed, or we'll grow out of it, but government spending is taxes.

And if you are masochistic you can google "tax rates for baucus bill" and find any number of liberal-leaning pundits complaining about the way the bill taxes people.

You also know that it's going to raise taxes because the entire point is to get people not paying insurance to pay something.

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