Tuesday, March 23, 2010

Health Reform Marginal Income Tax Rates: Technical Notes

Yesterday I noted two estimates of effects of the Senate Health Reform Bill on marginal income tax rates. Both estimates agreed that the bill would significantly increase marginal tax rates, but appeared to have different conclusions about the magnitudes. Michael Cannon and Victoria Payne at the Cato Institute kindly offered some explanation of why their estimates were different from those of Holtz-Eakin/Brill:

"1. While both parties included income tax, EITC, and child tax credits, we also included social security and Medicare taxes. Because we included both the employer and employee side of those taxes, we also included the employer share as income when figuring out the overall tax rates. This is the same method the JCT employed, and they explain it a bit better than I just did in footnote 1 of http://www.hudson.org/files/documents/Response_to_Mark_Prater_Effective_Marginal_Tax_Rates.pdf.

2. We included the loss of the bill's cost-sharing tax credits, which Holtz-Eakin and Brill did not. The cost-sharing tax credits are outlined on pp. 261-262 of http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdf, but essentially, families at 150% and below of the FPL get insurance with a 90% actuarial value, families with incomes between 150 and 200% FPL get insurance with 80% actuarial value, and families above that get no special treatment.

3. We also assumed that people would purchase a 60% AV plan (called a bronze plan in the bill) rather than the subsidized 70% AV silver plan if it were cheaper for them to do so. I'm not certain if they chose to consider that or not, but it's not in their graph. (This accounts for the final spike in our charts). Depending on how expensive you predict insurance will be, families might not necessarily face this choice if they hit 400% FPL--the phase out of all subsidies--before their mandate tax rate exceeds the cost of a bronze plan. When that happens, there is an even steeper cliff at 400% FPL."

It will take me a while to digest what all this means, but in the meantime readers of this blog may want to pursue this further -- I hope the above information helps.

1 comment:

Terry said...

I think a rate schedule is a chart that helps United States taxpayers determine their federal income tax burden for a particular year
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