We-Have-to-Pass-It-to-Find-Out-What’s-In-It Fact of the Day
Here is a surprising discovery about taxation under the new health law by Bob Graboyes and Douglas Holtz-Eakin:
The first new tax is a payroll surtax — an extra 0.9% on wage and salary income over $200,000 for single filers or $250,000 for joint filers. The second is a new 3.8% tax on some or all investment income of taxpayers with modified adjusted gross income (MAGI) over $200,000 for single filers or $250,000 for joint filers…
Consider three couples, whom we’ll call the Lows (lower-income), the Middles (middle-income), and the Highs (higher-income). Each has $30,000 in investment income, but the Lows have $100,000 in wage income, the Middles have $230,000 in wage income, and the Highs have $260,000 in wage income. Thus, their MAGIs (wages + investments) are $130,000, $260,000, and $290,000, respectively.
Suppose one spouse in each couple is offered a more exhausting job for a $10,000 wage increase. The Lows’ wages and MAGI will both remain below the $250,000 cutoff, so their taxes rise only by the existing payroll tax ($145). The Highs are already well over the threshold for both wages and MAGI. With a $10,000 wage increase, their tax increase will include both the regular payroll tax ($145) and the new surtax ($90), for a total of $235.
With a progressive taxation system, one would imagine that the Middles’ tax increase would lie somewhere between $145 and the $235. In fact, their taxes rise by $525 — more than twice the Highs’ increase and more than three times the Lows’ increase.
Interesting. Especially considering the promise not to raise taxes on the middle class.
Why is that every time there is a surprise fact of the day, the news is always bad?
High-income earners face substantial tax increases to help subsidies insurance for those less fortunate. The problem is that the high-income taxpayers already pay a disproportionate share of the personal income taxes paid. Moreover, health care consumes nearly one-in-five dollars of our economy. Thus it is unrealistic to make health coverage an entitlement for everyone below the median income (and age 65 and above) in a way that is sustainable. In a blog post in The Atlantic, one person with a serious health condition complained that premiums in the high-risk pool cost $600 per month – similar to a car payment or rent. Megan McArdle opined that isn’t life-saving medical care worth at least as much as a car payment or rent? The implication is that if people expect the benefits that advanced medical care can deliver; shouldn’t they expect to make access to that care as big a budgetary priority as their rent or cars?
Vicki, the surprises are all bad because the bill is bad. What is it about “bad” that you don’t understand?
The assumption that the Low’s (lower income) income is $100,000 with investments of $30,000 is a joke at best. The Low’s should be more like $40,000 with no investments.
Typical straw man argument. Start with a conclusion and work backwards.
@Erik: Your definition of “low,” “middle,” and “high” are different than the author’s.. OK. Let’s grant your premise that low is $40k w/$0 investment income. Doesn’t change the fact that the person who crosses right around that $250k threshold sees a bigger tax jump than the “high” income family. But I suppose you want to define “high” as $250k per family. And in that way you think its ok to tax the bejeebies out of them. You’re entitled to that opinion. It doesn’t change the math and it doesn’t change the fact that crossing a threshold makes a big difference in your taxes which is disincentive to work harder and cross that threshold which is bad for the economy.