Marginal Tax concerns about Health Care Plans

Coming mainly from Greg Mankiw's blog, and he's an admitted conservative, but there are a couple of articles, with supporting numbers, about the Baucus health car plan's effect on marginal tax rates.  The plan includes subsidies for lower income participants, to help cover their insurance costs.  Probably well intentioned, and sure to appeal to a lot of voters in those income ranges.  However, these subsidies phase out as you get above the poverty line, creating a effective "marginal tax" rate.  If you earn a dollar more, you don't get to keep it all, because you are losing part of the subsidy.

One article calculates the marginal tax rate for these subsidies at 23 to 24%.  The CBO essentially agrees:

"In that case, marginal tax rates would go up by about 22 percentage points for all families whose income was between 100 percent and 400 percent of the poverty level."

Note - the CBO estimates poverty level when these laws take place will be roughly $23,000.  So this marginal tax will affect all Americans making between $23,000 and $92,000, which is the vast majority of Americans.

In an earlier post, Mankiw links to this article in New Atlantis, where James Capretta comes up with a higher estimate of 30% for the Baucus marginal tax.  The math is a little different because he only considers families making 100 to 200 percent of the poverty level.  He then looks at other taxes on people in this income range.

The Earned Income Tax Credit (EITC) is reduced by $0.21 for every additional $1 earned - an effective 21% marginal tax..
The individual income tax rate is 15 percent.  (Though most of this is covered by deductions at this low income, so I'm skeptical whether to count this)
Payroll taxes are 7.65 percent.  And, one would argue that this tax should be doubled.  Even though the company "pays" half, in reality, this money doesn't grow on trees, it comes from wages.

So, an optimist who completely discounts the Federal Income tax for these wage earners, and only counts FICA once, and counts the health care marginal tax at the lowest number, 22%, still comes up with a marginal tax rate of 50%.  Pretty high.  The "health care tax" roughly doubles the marginal tax rate.

A pessimist who counts all the taxes, including Federal Income Tax, and uses Capretta's slightly higher 30% number for health care, computes a marginal tax rate of over 80%.

The truth is undoubtedly somewhere in between.  These calculations do not count State and Local Taxes.