Way back on Monday, NYT columnist David Brooks was complaining that the tax surcharge on the wealthy proposed in the House health care bill would raise the marginal tax rates for high-end families above 50 percent in states with high income taxes. He warned that wealthy families in California and New York would be paying a higher marginal tax rate than in France. Well, today he seems to be suggesting the same sorts of high tax rates, except for much more middle income people. Brooks proposes phasing out Medicare benefits based on income, in other words imposing a tax in the form of benefit reduction as people's income rises. There can be various schedules for such phase outs, but given the value of the benefit and the desire to get some actual money, you would almost certainly need a phase out rate in the area of 10 cents in reduced benefits for every dollar of additional income. The problem is that we already have a benefit phase out along these lines for Social Security. As a result, senior couples with an income of $60,000 (Brooks' definition of "rich") already face a marginal effective federal tax rate of 35 percent (25 percent marginal tax rate, plus 10 percent Social Security benefit loss rate). Add in 5 percent for state income taxes and we're up to a 40 percent tax rate. If we then throw in Mr. Brooks phase out of Medicare benefits and we're hitting 50 percent. Higher income people would be looking at effective marginal tax rates under the Brooks proposal of close to 60 percent even with the top Bush marginal tax rates. If we let the Bush rates expire, so that the wealthy are paying a 39.6 percent marginal federal rate, then Brooks wants them to pay close to a 70 percent marginal tax rate. Now that's a high tax rate.
--Dean Baker
