Friday, August 30, 2013

Obamacare's Marginal Tax Increases Will Undo A Decade of Worker After-tax Productivity Gains and Decrease Consumer Spending And Labor

From supply and demand (in that order) blog, "Average Marginal Labor Income Tax Rates under the Affordable Care Act" by Casey B. Mulligan:
The ACA [Affordable Care Act aka 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 would be expected to significantly depress the amounts of labor and consumer spending in the economy even if the wage elasticity of labor supply were small (but not literally zero). The large tax rate increases are the primary reason why it is unlikely that labor market activity will return even near to its pre-recession levels as long as the ACA’s work disincentives remain in place.

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