Monday, March 22, 2010

The Growth Depressing Health Care Bill

While all 178 Republicans in the House as well as 34 Democrats voted against it, Obamacare still passed as the remaining 219 Democrats voted for it (see roll call vote here). It was close to getting voted down, until Obama convinced Bart Stupak and other anti-abortion Democrats to vote for it in exchange for an executive order prohibiting the use of federal subsidies for abortion.

One aspect which is rarely mentioned is the fact that this bill will be partly financed by yet further tax increases, as Larry Kudlow points to here. Specifically, high income earners will see taxes on work related income rise by about 1 percentage point and by about 4 percentage points on capital income. Combined with other planned tax increases, this will imply a significant increase in marginal tax rates, something which will depress growth.

Note that unlike some of the other tax increases (most notably the expiration of the Bush tax cuts) these tax increases won't take effect until 2013, meaning that there won't be any significant effects during the coming year or so.