CBO: Obamacare Discourages Work

by Hans Bader on October 28, 2010 · 1 comment

in Economy, Employment, Healthcare, Regulation

Even the Congressional Budget Office, which allowed supporters of Obamacare to hide its costs through gimmicks and dodges, admitted last “Friday that Obamacare includes work disincentives likely to shrink the amount of labor used in the economy.”  For example, it effectively creates a 35,618 percent marginal tax rate for one hypothetical 62-year-old whose income rises by $22, by triggering the sudden loss of $7,836 in government tax credits (as Ted Frank explains below).

As a newspaper columnist notes,

The new health law will give some older households without access to employer care a big incentive not to earn too much. That’s because earning more than 400% of the poverty level would make them ineligible for subsidies that may be well in excess of $10,000 for couples.  Consider this example of a single individual age 62 in a high-cost area and no access to employer care. According to the Kaiser Family Foundation’s Health Reform Subsidy Calculator … [a]t 400% of the poverty level, or $46,000, an individual would get $7,830 in premium subsidies.  And at 401% of the poverty level, an individual would get no government support.

Or, as legal commentator Ted Frank notes, under Obamacare,

[A] 62-year-old in a high-cost area earning $46,000 a year without health insurance is entitled to a $7,836 government tax credit. Leaving aside how our strapped government can afford that, here’s what’s interesting: if the same person makes a mistake and earns an extra $22 in income, he loses the entire $7,836 credit. (The cutoff, according to Kaiser, is between $46,021 and $46,022.) That’s a 35,618% marginal tax rate. Indeed, the problem is so severe that our 62-year-old subject will have more take-home pay if he earns $46,000 than if he earns $55,000. And even at lower income levels, there is as much as a 16% surcharge on income at the margin.

This penalty for working and earning more is the result of really lousy drafting on the part of the authors of Obamacare. They could easily have avoided this problem by gradually phasing out the premium subsidies and tax credits, the way the tax code gradually phases out personal exemptions and itemized deductions for people who make well over $100,000 a year.  But they were too arrogant to learn anything from existing provisions that worked.

As noted earlier, the healthcare law imposes many middle-class tax increases, such as on cosmetic surgery and medical devices, and it increases taxes in future years on investors.  Obamacare will also reduce lifesaving medical innovation, break many campaign promises, and increase state budget deficits. It is driving up health insurance premiums, and it imposes restrictions that failed when tried at the state level. It ignores advice from doctors and federal experts, and lessons from countries with universal health care, about how to reduce costs.

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