Obamacare Increases Marginal Tax Rate on Labor by Six Percentage Points
June 30, 2014
The Affordable Care Act (ACA) increases marginal tax rates on labor by 6 percent, making it one of the largest tax increases of the past seven decades, explains Andrew Lundeen of the Tax Foundation.
Economist Casey Mulligan writes that the ACA represents the largest tax increase in a single piece of legislation.
Mulligan is talking about implicit marginal tax rates, which he defines as "the extra taxes paid, and subsidies forgone, as the result of working." There should be no surprise, Mulligan says, that legislation which taxes jobs and incomes would result in less income and fewer jobs.
- According to Greg Mankiw, this tax increase cuts the return to working by 10 percent.
- As such, Americans can expect to see a decline in the labor supply of 5 percent.
- Mulligan adds that the economy will experience approximately a two percent drop in size as a result.
A policy that cuts the return to work by 10 percent is troubling in an economy that currently has a labor force participation rate of only 63 percent.
Source: Andrew Lundeen, "Obamacare Increases Marginal Tax Rate on Labor by Six Percentage Points," Tax Foundation, June 24, 2014
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