Monday, October 19, 2009

The New Obama Tax System

Monday's Wall Street Journal contained a terrific opinion piece pointing out the new marginal tax rates that American workers will face when Obamacare is passed into law. For those between the poverty line and twice the poverty line the marginal rates will approach 70 percent of income. The effective marginal rates for taxpayers with income under $ 60,000 per year from the health care bill alone are generally between 20 and 35 percent for most working Americans and 70 percent or more for lower income Americans. These new marginal tax rates are in addition to the existing tax structure and represent a new and burdensome slamdown on the American middle class.

The reason for these huge marginal tax rates is that subsidies are provided in the bills to offset the dramatically higher health care premiums that everyone will face under Obamacare, but these subsidies are drastically reduced as your income rises. So, you will pay huge amounts at the margin for your health care if your income rises.

This doesn't bother Obama because he doesn't think incomes will rise given his other economic policies. He might be right about that. There certainly won't be much incentive for workers to push for higher incomes or take any steps to improve their income after Obama gets done.