A 70% tax on work

http://www.thenewatlantis.com/blog/diagnosis/a-70-percent-tax-on...

President Obama said Monday that the debate on health care has gone on long enough, and now is the time to pass something.

But does Congress, let alone the public, really understand what these bills would mean for the health sector and the wider U.S. economy? In 1994, the Congressional Budget Office (CBO) issued a lengthy assessment of the Clinton administration’s proposal, covering everything from its distributional consequences to the budgetary treatment of its various moving parts. The public should get the same kind of thorough review of what Obamacare would mean before Congress takes any further steps toward passage.

For instance, there hasn’t yet been a thorough analysis of what the bills moving in the House and Senate would mean for work incentives among low-wage families. A cursory review indicates that Obamacare would impose a massive new implicit tax on low-wage households, effectively penalizing the family that tries to do the right thing by working their way into the middle class.

According to CBO, family coverage in 2016 is likely to cost about $14,400 under the so-called “silver option” in the health-care reform plan sponsored by Senate Finance Committee Chairman Max Baucus. In the Baucus plan, a family of four at the poverty line (about $24,000 in 2016) would have pay to about $1,400 toward coverage, with the federal government paying the other $13,000 on their behalf. In addition, the government would also provide $3,500 to reduce the family’s deductible and co-payment costs for health services. Thus, the new entitlement provided by the Baucus bill would be worth a whopping $16,500 for a family at the poverty line.

As incomes rise, however, the Baucus bill cuts the value of the entitlement. A family with an income at twice the poverty line, or $48,000 in 2016, would get $9,072 in federal assistance for coverage — still a substantial sum. But it’s $7,400 less than the family would get if they earned half as much. The Baucus plan thus imposes an implicit marginal tax rate of about 30 percent ($7,400/$24,000) on wages earned by families in this income range.

And that would come on top of the high implicit taxes already built into current law. Low-wage families with children also get the Earned Income Tax Credit (EITC). The EITC boosts incomes for those with the very lowest wages, but it is also phased-out as incomes rise. Past a certain threshold (about $21,400 in 2016), the EITC is reduced by $0.21 for every additional $1 earned. Throw in the individual income tax rate (15 percent) and payroll taxes (7.65 percent), and the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.

The more Obamacare is rushed through Congress, the more likely it is to produce highly regrettable unintended consequences. Surely even the Democrats in Congress can see how damaging it would be to send signals to low-wage breadwinners that it no longer makes sense to seek a higher-paying job.

I wonder if the labor economists around are reading this.

There are many individuals who only work a portion of the year to maximize their EIC before stopping. People respond to incentives; we'll see how they respond to these.

And these figures don't even include state taxes.

and this will be political so theres no point in posting it.

current healthcare reform is reforming insurance not healthcare.

until the fatcats at insurance co's and big pharma are made accountable, our problems will worsen.

Maybe I am missing something, but which part of that bill would cut cost/improve efficiency?

How does a company make "excess" profits? You are looking at things in a bad way. You need to look at things in term of %.

TolamapS,

If I buy lemonade mix for $50 and sell lemonade for $100, my profit is $50. However my return in 100% is in the stratosphere.
If I buy the lemonade pre-made for $100 and sell it for $175 profit is $75(50% higher). However my return is much less.

In a free society if a company makes too much, other companies enter the market to compete, over time reducing profits.

Your way a company will take risks but not rewards. It's called communism

I think the reason that certain companies make "excess" profits is more of a reflection on how much government intervention we have already had. Get these jokers out of the decision altogether and have them leave us the F alone. We can pick our own healthcare.

Although it technically goes against my free-market principals, at this point I think the best thing they could do would be to abolish the link between your employer and your health insurance. Just end it. Companies will be forced to pay us the difference, and we can use that money to buy our own insurance.

Companies will be forced to pay us the difference, and we can use that money to buy our own insurance.

Even better, we can spend it on H&B! Maybe on trinkets and junk for those with less of an appetite for life.

Wow, 70%. It's getting hardly worth getting out of bed to go to work in the morning. But it's hard to argue with the thought that more people working less would be a bad thing for society overall.

welookgoodcom said: How does a company make "excess" profits? You are looking at things in a bad way. You need to look at things in term of %.

TolamapS,

If I buy lemonade mix for $50 and sell lemonade for $100, my profit is $50. However my return in 100% is in the stratosphere.
If I buy the lemonade pre-made for $100 and sell it for $175 profit is $75(50% higher). However my return is much less.

In a free society if a company makes too much, other companies enter the market to compete, over time reducing profits.

Your way a company will take risks but not rewards. It's called communism

I didn't want to enter this topic, but I do want to reply to you. You seem to be at least somewhat knowledge when it comes to vocabulary, but you really need to look up the word communism. It is not what most people think it is. Also, in a free society a lot of great things happen that are not happening in the U.S. If you don't think there is corruption in the corporate world, including corruption in the insurance industry that prevents other companies to enter and be competitive, you might want to read up on it.

Krazen1211 said: Surely even the Democrats in Congress can see how damaging it would be to send signals to low-wage breadwinners that it no longer makes sense to seek a higher-paying job.

I have already figured that out, It's no longer worth working hard just to get killed in taxes. Instead of my usual almost 40% taxes on my 1099-INT I will now pay less than 10% after deductions by retiring and not having W2 income, To me now it's not what I make but what I get to keep. Unfortunately I had to put a couple dozen people out of a job to do this.

nycll said: It's simple maths. Welfare is negative tax rate. As income goes higher, welfare needs to be phased out as quickly as possible. So the transition from a big negative tax rate to a positive one is going to produce a big maginal tax rate. As long as the marginal tax rate is not over 100%, I am ok with it. Seriously what does the author want to happen to "solve" the "70% marginal tax" issue? The 1st option that doesn't work is not to provide welfare to families at poverty line-but they will just get it from ER which cost us more. The second option is to widen the phase out window, i.e., make more families making more than 48k able to get partial subsidy-but why? The author doesn't seem like someone who is overtly promting spreading the wealth.

Sometimes life isn't fair, like only the guy who has failed kidneys can get free kidneys from donors.

ahh so 70% taxes for those making between 100-200% the poverty line are now fine. instead of wage slaves, we now create tax slaves. But hey, you have your health insurance.

I've also seen numbers that the uninsured cost us far less then people claim. to the tune of ~200 dollars per family

welookgoodcom said: Your #3 is also incorrect. Studies have shown people going to doctors for check-ups for rare conditions INCREASES COSTS. For example prostate cancer might be 1 in 1000. By forcing 1000 people go to a dr for a checkup.. A dr gets busy for no reason..Costs add up..

Can you post a link to one of these studies please?

DutchDutch said: welookgoodcom said: Your #3 is also incorrect. Studies have shown people going to doctors for check-ups for rare conditions INCREASES COSTS. For example prostate cancer might be 1 in 1000. By forcing 1000 people go to a dr for a checkup.. A dr gets busy for no reason..Costs add up..

Can you post a link to one of these studies please?"Sweeping statements about the cost-saving potential of prevention, however, are overreaching. Studies have concluded that preventing illness can in some cases save money but in other cases can add to health care costs" http://content.nejm.org/cgi/content/full/358/7/661

Preventive care not always cost effective, experts say

... "I think it almost always costs more money," said Dr. H. Gilbert Welch, a professor of medicine at Dartmouth Medical School and author of "Should I Be Tested for Cancer."

"The problem with early detection strategies is it identifies so many well people as having abnormalities that may be worrisome for disease. But it turns out most of them will never become a problem," said Welch, who has looked at the costs and benefits of the routine testing patients undergo."

Krazen1211 said:

According to CBO, family coverage in 2016 is likely to cost about $14,400 under the so-called “silver option” in the health-care reform plan sponsored by Senate Finance Committee Chairman Max Baucus. In the Baucus plan, a family of four at the poverty line (about $24,000 in 2016) would have pay to about $1,400 toward coverage, with the federal government paying the other $13,000 on their behalf. In addition, the government would also provide $3,500 to reduce the family’s deductible and co-payment costs for health services. Thus, the new entitlement provided by the Baucus bill would be worth a whopping $16,500 for a family at the poverty line.

As incomes rise, however, the Baucus bill cuts the value of the entitlement. A family with an income at twice the poverty line, or $48,000 in 2016, would get $9,072 in federal assistance for coverage — still a substantial sum. But it’s $7,400 less than the family would get if they earned half as much. The Baucus plan thus imposes an implicit marginal tax rate of about 30 percent ($7,400/$24,000) on wages earned by families in this income range.

And that would come on top of the high implicit taxes already built into current law.

How much will those families pay for healthcare in 2016 without reform? How much will the taxpayers pay for their healthcare in 2016 without reform? Project those costs out, then calculate the incremental cost/tax...

Xnarg said: DutchDutch said: welookgoodcom said: Your #3 is also incorrect. Studies have shown people going to doctors for check-ups for rare conditions INCREASES COSTS. For example prostate cancer might be 1 in 1000. By forcing 1000 people go to a dr for a checkup.. A dr gets busy for no reason..Costs add up..

Can you post a link to one of these studies please?"Sweeping statements about the cost-saving potential of prevention, however, are overreaching. Studies have concluded that preventing illness can in some cases save money but in other cases can add to health care costs" http://content.nejm.org/cgi/content/full/358/7/661

Preventive care not always cost effective, experts say

... "I think it almost always costs more money," said Dr. H. Gilbert Welch, a professor of medicine at Dartmouth Medical School and author of "Should I Be Tested for Cancer."

"The problem with early detection strategies is it identifies so many well people as having abnormalities that may be worrisome for disease. But it turns out most of them will never become a problem," said Welch, who has looked at the costs and benefits of the routine testing patients undergo."

Just google "preventive care not saving money." There are plenty of articles on in. The basic idea is this:

Prevention may save lives, but it does not save money in many cases. Testing everyone for cancer may find a few people with it, but the cost for all these test is much higher than any gain from finding it at an earlier stage.

michal1980 said: nycll said: It's simple maths. Welfare is negative tax rate. As income goes higher, welfare needs to be phased out as quickly as possible. So the transition from a big negative tax rate to a positive one is going to produce a big maginal tax rate. As long as the marginal tax rate is not over 100%, I am ok with it. Seriously what does the author want to happen to "solve" the "70% marginal tax" issue? The 1st option that doesn't work is not to provide welfare to families at poverty line-but they will just get it from ER which cost us more. The second option is to widen the phase out window, i.e., make more families making more than 48k able to get partial subsidy-but why? The author doesn't seem like someone who is overtly promting spreading the wealth.

Sometimes life isn't fair, like only the guy who has failed kidneys can get free kidneys from donors.ahh so 70% taxes for those making between 100-200% the poverty line are now fine. instead of wage slaves, we now create tax slaves. But hey, you have your health insurance.

I've also seen numbers that the uninsured cost us far less then people claim. to the tune of ~200 dollars per familyYou are confusing the effective tax rate, which isn't too much above zero for your "tax slaves" making 1x-2x poverty line income, and the marginal tax rate of the alleged 70%. Maybe it is the purpose of the author that people will confuse the two?

Like I said, when you have welfare--a negative tax essentially, marginal rates often look strange. Strange might be an understatement. For example, if you compare the true cost of free health care a non-working family gets with the insurance cost a responsible low income working family has to pay, the marginal tax rate computed in the same fashion as OP's has got to be much higher than 100%. How is that for perverse incentive?

ppatin said: Maybe the solution is fewer handouts for the non-productive?Broadly speaking I do agree with you. But in the case of health care, how exactly do you solve the free emergency care issue?

wilesmt said: Xnarg said: DutchDutch said: welookgoodcom said: Your #3 is also incorrect. Studies have shown people going to doctors for check-ups for rare conditions INCREASES COSTS. For example prostate cancer might be 1 in 1000. By forcing 1000 people go to a dr for a checkup.. A dr gets busy for no reason..Costs add up..

Can you post a link to one of these studies please?"Sweeping statements about the cost-saving potential of prevention, however, are overreaching. Studies have concluded that preventing illness can in some cases save money but in other cases can add to health care costs" http://content.nejm.org/cgi/content/full/358/7/661

Preventive care not always cost effective, experts say

... "I think it almost always costs more money," said Dr. H. Gilbert Welch, a professor of medicine at Dartmouth Medical School and author of "Should I Be Tested for Cancer."

"The problem with early detection strategies is it identifies so many well people as having abnormalities that may be worrisome for disease. But it turns out most of them will never become a problem," said Welch, who has looked at the costs and benefits of the routine testing patients undergo."


Just google "preventive care not saving money." There are plenty of articles on in. The basic idea is this:

Prevention may save lives, but it does not save money in many cases. Testing everyone for cancer may find a few people with it, but the cost for all these test is much higher than any gain from finding it at an earlier stage.
You don't even have to go that far.
Common sense: Everyone is still going to die of something. Preventative care may keep someone from dying from lung cancer at 30, but you can't prevent everything forever.

welookgoodcom said: How does a company make "excess" profits? Simple, the hold a gun at your head and force you to buy... The irony is that is exactly what is being proposed in this abominable bill.

nmphage33 said:
]If you look at rationed health care economies (Canada, UK, Scandinavia) cancer screening is often frowned upon (google: Ontario PSA screening for example). This seems to suggest that prevention/early treatment, averaged out over the whole population, costs more money. The example I'm most familiar with (PSA screening in Ontario) demonstrates this: the PSA tests costs maybe $30 total, why not cover it? Because treatment for the 5% who find prostate cancer by screening costs more than finding it later in 2% and having only 1% actually die from it. In general, in rationed health care economies, early death saves the system money. Any volunteers?

Not to mention that financially, 2010 is the best year to die when the estate tax is at 0%. Do it for your heirs, I mean, not just for the society.... Any volunteers now?

JTFH said: welookgoodcom said: How does a company make "excess" profits? Simple, the hold a gun at your head and force you to buy... The irony is that is exactly what is being proposed in this abominable bill.

I am not averse to making cheap bare-bones catastrophic plans mandatory in the same manner as all states typically make liability auto insurance mandatory. But the bill as proposed sucks in many ways.

How to solve most of the current health care problems:

1. Eliminate the cross-state purchasing problem. Instant competition x 50.
2. Ensure that a cheap bare-bones catastrophic plan is available in every state and mandate everyone have at least that. The states are the ones typically making this impossible by requiring plans to cover all sorts of things. Do not allow the states to do this.
3. Make the purchase of health insurance tax neutral between buying it through your employer or directly.
4. Deal in some way (arbitration? non-jury trials? caps?) with the trial lawyers and the massive defensive medicine costs they cause.

Done.

If absolutely absolutely necessary, expand Medicaid a bit. It would still be far cheaper than the current stupidity which is running through congress.

ppatin said: There was one study that suggested that high rates of smoking and obesity actually reduced healthcare costs, because people who smoke a pack a day and eat McDonalds on a regular basis are much likelier to keel over earlier. Healthy people who make it into their 80s and 90s were supposedly a bigger drain on the system.

Now this is interesting analysis. Now I understand that the talk of death panels and reduced care for the elderly is mostly propoganda intended to engender fear among the elderly and galvanize that segment that is looking for any reason to opposed the current administration, but I had always thought that maybe it's not such a bad idea to have some (carefully-selected) cut-back on this care (at least to the extent that it is funded by taxpayers). see Sorry Granny

Ahh.... I can hear the fogie outrage already. But the alternative to continue to let the public foot these seemingly avoidable costs, which contribute to our growing deficit and either lead to higher taxes, or worse, yadda yadda yadda...

Six figure interst income?