Greg Mankiw wrote a great piece in The New York Times yesterday on the likely tax implications of the current health care reform legislation.  It looks like tax hikes on the middle-class might be used to pay for the costly, health reform legislation. 

The bill that recently came out of the Senate Finance Committee illustrates the problem. Under the proposed legislation, Americans would have the opportunity to buy health insurance through government-run exchanges. Depending on a family’s income, premiums and cost-sharing expenses, like co-payments and deductibles, would be subsidized to make health care more affordable.

A family of four with an income, say, of $54,000 would pay $9,900 for health care. That covers only about half the actual cost. Uncle Sam would pick up the rest.

Now suppose that the same family earns an additional $12,000 by, for example, having the primary earner work overtime or sending a secondary worker into the labor force. In that case, the federal subsidy shrinks, so the family’s cost of health care rises to $12,700.

In other words, $2,800 of the $12,000 of extra income, or 23 percent, would be effectively taxed away by the government’s new health care system.

The likely efficacy of the Democrat’s health plan is dubious, to say the least.  It incorporates no free-market solutions and doesn’t seem poised to achieve any of its stated objectives of actually lowering costs or making the system more efficient.  The biggest joke is that this plan will increase “competition.”  How can you compete with the government, a not-for-profit entity?  If you really want to increase competition, health care providers should be able to provide services in all fifty states.  Right now, insurance providers are limited by artificial market constraints.  At the end of the day, te proposed legislation is bad public policy.