Tuesday, November 3, 2009

Implicit marginal tax rates in new health insurance coverage

Greg Mankiw points out high implicit marginal tax rates associated with health insurance reform as currently proposed. Insurance subsidies for low-income families phase out with income, meaning that as income rises, it is taxed away either implicitly through a reduction in health insurance subsidies or explicitly through payroll and income taxes.

The income levels he cites are not low: $54,000 for a family of four. The Earned Income Tax Credit also has a phaseout, but at a somewhat lower level of income, something like $35K - $40K or so.