The taxation story is not about the rich, folks. It's about the young earner. What this says is that, if you fully use the various transfer payments available to you as working poor (making $15,000) you can have goods priced at $40,000. If you earn $40,000 you can have goods and services worth ... a but less than $40,000. Maybe it's the same goods, maybe not. But the point of the graph is that when you combine the federal and state income taxes, payroll taxes and deduct the lost subsidies from various government programs from SCHIP to housing to food stamps, you lose sometimes more than a dollar of goods for each dollar you earn. Your incentive to improve your condition is de minimus.

Graph from here with details. H/T: Greg Mankiw who asks that this be redone by someone with more authority, like the Congressional Budget Office. Health care reform as a transfer system will only make this worse.

Labels: economics, health care