Implicit marginal rate comes home to roost on Obamacare
This all was predicted. Obamacare subsidies decrease the incentive to work harder because as one’s income increases, the subsidies vanish.
It’s what we call the implicit marginal rate which takes into account not only tax marginal rates, but also loss of government benefits.
In the key 30-50,000 range, the implicit marginal rate has exceeded 100% even before Obamacare (see Featured Image above) — meaning that it is economically irrational to earn an extra dollar because you will lose more than one dollar through taxes and loss of benefits.
Obamacare makes that problem even worse because of the high cost of Obamacare health insurance which depends on subsidies to render it even somewhat “affordable.” Lose those subsidies and the cost of mandatory health insurance becomes onerous.
A historically high number of people will be locked out of the workforce by 2021, according to a report by the Congressional Budget Office released Tuesday.
President Barack Obama’s signature health-care law will contribute to this phenomenon, the CBO said, citing new estimates that the Affordable Care Act will cause a larger than-expected reduction in working hours—eliminating the equivalent of about 2.3 million workers in 2021 versus a previous estimate of an 800,000 decline.
“CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 to 2 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive,” said the report.
The CBO Report states (in Appendix C):
The ACA’s largest impact on labor markets will probably occur after 2016, once its major provisions have taken full effect and overall economic output nears its maximum sustainable level. CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive. Because the largest declines in labor supply will probably occur among lower-wage workers, the reduction in aggregate compensation (wages, salaries,
and fringe benefits) and the impact on the overall economy will be proportionally smaller than the reduction in hours worked.
Specifically, CBO estimates that the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017–2024 period, compared with what it would have been otherwise. Although such effects are likely to continue after 2024 (the end of the current 10-year budget window), CBO has not estimated their magnitude or duration over a longer period.
The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA.
That’s right, the equivalent of 2 million fewer jobs because people are economically rational.DONATE
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