Change Is Obamacare's Only Certainty

Interesting post by Megan McArdle. One issue involves what are some very high marginal tax rates. Excerpt:

"And I suspect we’re not done with the emergency fixes.

To see why, consider a fictional middle-class family. Call them the Petersons. Mom, Dad, two swell kids. Dad has his own landscaping business, and Mom works part time as a massage therapist. Together, they pulled in $90,000 in family income in 2013, and that’s about what they expect to get in 2014, so that’s what they put into the system when they go to buy health insurance. They’re pleasantly surprised to find that they can get a Silver plan for $688 a month. That’s a lot of money, to be sure, but it comes with a substantial subsidy and they’re happy to get it.

Over the year, Mom picks up another regular massage client, and Dad gets a few more landscaping jobs than he had last year, and at the end of the year, good news: Their family income is now $95,000! The recession is over for this family.

Or is it just beginning? When their family income passed $94,000, the Petersons moved from just under 400 percent of the federal poverty line to just over. Which means that they no longer qualify for subsidies on their health insurance, and the Internal Revenue Service would like that $8,500 back, please.

Note that this means that by making an extra $5,000, the Petersons have cost themselves $8,500, for an effective marginal tax rate of 170 percent. For people who start out with incomes closer to 400 percent of the poverty line, the marginal tax rates can be even more extreme.

In future years, small-business owners will manage their income more carefully in order to avoid popping the subsidy cap. But in 2014, many people just won’t know. They’ll find out in spring 2015, and shortly thereafter we’ll find out, when they contact a local television station.

How many people are we talking about? They’re hardly the majority. But they will be a very telegenic minority, and it’s hard to see the administration sticking to their guns and demanding that these folks pay back so much money. Indeed, it’s hard to see the Department of Health and Human Services letting the situation get to that point without some more creative emergency rule making."