Obamacare and Taxes

Casey Mulligan has looked into this in a paper he has at the National Bureau of Economic Research titled “Average Marginal Labor Income Tax Rates under the Affordable Care Act“.  The full paper can be had through the NBER for five bucks.

Mulligan summarizes his paper here, on his blog supply and demand (in that order).

My summary of Mulligan’s summary is his comparison of Obamacare’s impact on our marginal tax rates with the impact of a couple of other programs and his comment on the impact of Obamacare on our take home pay—the part of our paychecks we actually get to use for our own purposes.

Several SNAP (formerly food stamp program) expansions in combination were a quarter of the ACA’s magnitude.  In terms of its impact on average marginal tax rates, the ACA hike is almost double the effect of permanently increasing unemployment benefit payments to 99 weeks from a baseline of 26 weeks[.]

And

[Obamacare] 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 is to say, in just two short years—immediately on implementation of Obamacare—our median income wage earner will see his take home pay drop 17%, from 60% of his paycheck (already too small a portion) to a miniscule 50% of his paycheck.  As Mulligan notes, that is an enormous penalty to pay for the opportunity to work for one’s living.

Keep in mind, also, that the median weekly income in the US as recently as 2012 was the princely sum of $775.  This works out to a skosh over $40,000 per year.  It’s hard enough to feed, cloth, and educate a family on three-fifths of that.  Think about trying to do it on only half.

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