Paul Krugman reads his Modeled Behavior
Conservative economists love to point out that means-tested programs like food stamps in effect create high marginal tax rates for low-income families, since they lose benefits if they work and earn more. Well, means-testing Medicare would do the same thing: your reward for a life of hard work and accumulation will be higher copays and deductibles.
Actually this is a pretty basic Public Finance result. However, it is one that is probably going to take a lot repeating to make it into the conventional wisdom. So, here I go again: means-testing is a marginal tax increase.
And, to be clear, its not just a “tax increase” it’s a marginal tax increase. The kind folks who focus on tax incentives should fear most.
Cutting Social Security benefits is a marginal tax increase as well. I’ll do more on that when I get the chance but its worth getting the meme started.
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Sunday ~ July 24th, 2011 at 8:19 pm
Blackadder
Means testing is not a marginal tax increase. When tax rates go up people have to pay the extra taxes now. With means testing benefit cuts occur can several decades after an individual earns enough income to “qualify” for the means test. Discounting means they are not equivalent.
Monday ~ July 25th, 2011 at 10:57 am
Ryan P
Sure, it’s a marginal tax increase, but it’s also a major cut in spending, which works out to be a decrease in taxes (and marginal tax rates because that’s how these things work). Hard to see how anyone would argue that works out to be a net loss for incentives, and I’m kind of skeptical you think so
Tuesday ~ October 4th, 2011 at 4:08 pm
Get Rid Timeshare
Thankfully some bloggers can still write. Thanks for this piece