What ObamaCare Does to Marginal Tax Rates

This is based on a new study by Casey Mulligan:

[A]ll provisions combined raise marginal tax rates in 2015 by 10 percentage points of total compensation, on average, for about half of the nonelderly adult population and zero percentage points for the rest…

The ACA has not been introduced into a tax-free economy, so its marginal tax rate hikes add to marginal tax rates already in effect. I estimate that, by 2015, the average marginal after-tax share among household heads and spouses with near-median weekly earnings will have fallen to 0.50 from 0.60 in 2007, largely from the ACA but also from other expansions in safety net programs. That is a massive 17 percent reduction in the reward to working ― akin to erasing a decade of labor productivity growth without the wealth effect ― that would be expected to significantly depress the amounts of labor and consumer spending in the economy even if the wage elasticity of labor supply were small (but not literally zero). The large tax rate increases are the primary reason why it is unlikely that labor market activity will return even near to its pre-recession levels as long as the ACA’s work disincentives remain in place.

Full study.

Comments (12)

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  1. Lucas says:

    “17 percent reduction in the reward to working ― akin to erasing a decade of labor productivity growth without the wealth effect”

    Steps backward are not the steps that need to be taken.

    • Crawford says:

      Agreed, Lucas. No wonder people are complaining about unemployment levels… With these tax increases, there’s even less incentive for people to get a job.

      • Perry says:

        My wife and I are trying to keep our combined income down to stay out of the higher bracket, because otherwise we’re just working for the government without the benefits.

        • Crawford says:

          Why is it that we, the American labor force, are not incentivized to work harder, be more productive, and earn more money? Sure, I understand that taxation is needed to allow for the government to operate, but at what point is enough, enough? Let me spend my hard earned money how I want to. Let the market grow by allowing us to pump the money into the market directly, thus creating a more efficient marketplace.

          • Lucas says:

            Unfortunately, new reasons are created to tax citizens. A strong push is being made for a single tax placed on everything, lessening the headache of the current tax system.

  2. Devon Herrick says:

    My research on the PPACA finds the premium subsidies are somewhat arbitrary. For example, the subsidy varies by size of household, age and income of applicant, and where they reside. A middle-age applicant, earning a upper-middle income salary and living in a high-cost region will often get a bigger subsidy than a low-income young person living in a low-cost region.

  3. Lucas says:

    “After health and work expenses, the part-time employee makes $28,929 per year, which exceeds the full-time income ($27,021) after health and work expenses!”

    Absolutely insane

  4. Jean says:

    Are there any logical minded people working in the ACA? This is just ridiculous

  5. Marc says:

    Most estimates of the implicit marginal tax rate of Obamacare are not even close. Using the Kaiser Family Foundation website and my own family demographics, an income of $60,000 nets a $6,308 insurance subsidy. Earning $70,000 nets absolutely no subsidy. That is a 63.08 percent marginal tax rate. Add that to the regular income tax rate of 15 percent and the other payroll taxes–you get a marginal tax rate of more than 80 percent for someone making $60,000!

    Why work?