Average Marginal Labor Income Tax Rates under the Affordable Care Act

by on September 3, 2013 at 2:57 am in Economics, Medicine | Permalink

That is a new paper by Casey Mulligan, here is the abstract:

The Affordable Care Act includes four significant, permanent, implicit unemployment assistance programs, plus various implicit subsidies for underemployment. Every sector of the economy, and about half of nonelderly adults, is directly affected by at least one of those provisions. This paper calculates the ACA’s impact on the average reward to working among nonelderly household heads and spouses. The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect. The ACA’s addition to labor tax wedges is roughly equivalent to doubling both employer and employee payroll tax rates for half of the population.

Mulligan summarizes the paper here, with further detail.  In another new paper, Mulligan compares ACA with Romneycare.

Adrian Ratnapala September 3, 2013 at 3:24 am

Is this not equivalent to saying that the subsidies in the ACA are well targeted towards low income earners?

Dan Weber September 3, 2013 at 12:39 pm

Yes, every program “for the poor” by definition means there are significant marginal taxes for those rising from the poor.

Dan September 3, 2013 at 4:10 am

Do these estimates include the people for whom the ACA reduces marginal taxes, like those near the Medicaid cutoff (who used to face a sharp drop in health benefits if their income increased)?

Harun September 4, 2013 at 2:27 pm

Those people pay taxes? Doubtful.

Marie September 4, 2013 at 6:02 pm

It’s not as sharp a drop as it once was, or could be.
Medicaid currently normally doesn’t apply to adults (except pregnant adults). There are indigent programs, but that’s usually (as I understand it) after that fact and about extremes.
Generally, if you are an adult without insurance, even a poor adult, and you get hurt or sick you get your health care (often via ER) and you get billed. And you can’t pay. So the medical entities negotiate your bill down (I’ve heard of thousands coming down to under $200) or they keep it on the books and send to collections but unless you have assets they just de facto have to write it off.
Medicaid generally covers kids and pregnant women (that’s changed now with the expansion, those in Medicaid range won’t be able to use the exchanges, they’ll have to use Medicaid, which will now cover adults). But as of right now, if you drop (climb) out of Medicaid eligibiilty some (maybe most?) states have a stop-gap program for families who don’t qualify for Medicaid but who have too low an income to buy insurance — I believe it is 133% of poverty level, something like that. That eases the transition a bit.

Bill September 3, 2013 at 9:24 am

What I like about economists is that they never studied double entry bookkeeping.

A paper about a tax; silence about benefits.

Andrew' September 3, 2013 at 10:50 am

That makes it mathematically correct, or approximately so when you show the negligible number of people who it helps, how it taxes them to force them into the system, how it eliminates their job by increasing labor costs, etc.

Richard September 3, 2013 at 5:33 pm

Bill, you’re wrong. The paper studies benefits and notes correctly that the ACA’s benefits discourage work because they phase out as the recipient’s income rises. A benefit phase-out works exactly like a tax on income; hence the paper’s use of the term “implicit tax.”

Bill September 3, 2013 at 7:30 pm

Richard, Re: “ACA’s benefits discourage work because they phase out as the recipient’s income rises”

The failure of logic here is that you assume (1) the change in the law is now the status quo and meaning that you do not compare it to the status quo ante. So, for example, a low income person with no health insurance previously went bankrupt (losing assets) or didn’t receive care (losing health and earning potential), or their family members didnt receive care…which was a greater “tax” as well. Nor does ignoring the status quo ante take into account the benefit confered…affordable health insurance. What Mulligan is really saying is that he doesn’t like the transfer from rich to poor. Tell me if you are working less because part of your otherwise capital gains are taxed to pay for the ACCA.

Dr. Deano September 4, 2013 at 4:47 pm

Bill – Your logic is flawed in that all low-income persons are effected by the phase-out Richard cited, while only a small percentage of that same population are effected by bankruptcy or the ‘no insurance tax’ you cite.Of those without insurance, not all went bankrupt or lost earnings due to not having insurance as some received health care through free and low-cost clinics and/or emergency rooms.

The paper’s observation that ACA discourages work is accurate across most of the population in question.

Bill September 4, 2013 at 7:36 pm

Dr., Your logic is flawed and really reflects a failure to understand insurance and the law of large numbers.

Your premise is that “all low-income persons are effected by the phase-out Richard cited, while only a small percentage of that same population are effected by bankruptcy or the ‘no insurance tax” You then go on to argue that since everyone in the low income population in the low income population will not get sick, or bankrupt, or could receive low cost (?) emergency room care.

You must really be some Doctor. You can predict who will get sick, who will go bankrupt, who will be able to access low cost (?) emergency room care, and who will not get sick, go bankrupt, or face high cost emergency room care.

How do you do that?

Most of us mortals rely upon insurance because we don’t know our fates, and we buy insurance because we don’t know. So, I suppose you would argue that every year I buy health insurance I made a mistake.

Or, perhaps you made the mistake with your argument presuming that healthcare futures are known, and therefore only “a few” poor people will ever need it.

mulp September 3, 2013 at 8:02 pm

Ie, before Obamacare, the working poor got to spend their money on poor living choices because the consequences were dealt with by wealth transfers from people with money at the ER that were required by law to provide mitigating medical care that you can never repay.

Now the working poor are forced to pay some portion of the income on insurance or taxes which cuts down the money for booze, tobacco, illicit drugs, gambling.

If they are fired because the cost of taxes makes their poor quality work too expensive, they will get tax funding that they can’t spend on bad habits, taking their freedom.

Now, I’m guessing you will react that not all workers are low margin workers, that some are future Gates and Jobs. So, why should they pay for insurance when they probably won’t need it, and just because its a hundred times more likely they will be Jobs the cancer patient than Jobs the billionaire, as long as they can charge their medical bills on credit cards, they can invoke the Constitutions wealth redistribution provision, the one that Trump the conservative constitutionalist invokes, bankruptcy.

Why buy insurance if healthy when you can use the Constitution’s redistribution of wealth when you get sick or injured: borrow, spend in treatment, bankruptcy. No need for Obamacare’s redistribution of wealth to spread around some of the healthy’s cash to the healthy that were wrong about being healthy.

Jay September 3, 2013 at 10:48 pm

Bill, do you feel the same way about a “study” that claims social security benefits lift X number of Americans above the poverty line while never bothering to investigate the Y number of Americans FICA taxes drive below the (after tax) poverty line?

Bill September 4, 2013 at 9:27 am

Jay, So, you evidently are in favor of removing the social security cap, and also applying SS to cap gains, for non-poverty incomes.

sniffy September 4, 2013 at 3:11 pm

Since Obamacare was sold to the public under the outright falsehood that it would “save money” on net, focusing on the real costs is highly relevant, and overdue.

Bill September 3, 2013 at 9:43 am

So, how do you do an econ paper on taxes without netting out or including the $600 I got back last year because my insurance carrier who exceeded his administrative cap?

celestus September 3, 2013 at 10:03 am

Do you get a larger rebate for having a higher income? If not I’m not sure how your comment is relevant to the point about marginal tax rates.

Bill September 3, 2013 at 11:04 am

Celestus, I do have a large income, but that is irrelevant: ACCA limited or capped health insurance carriers admin expenses at 85% of premium, which meant that my carrier had to rebate me and my wife $600. This year premiums were lower. Next year some free riders will be paying for their insurance, rather than me through hospital fees that cover free riders.

What I think is conceptually interesting about Mulligan’s piece, apart from the failure to do double entry bookkeeping and account for caps and rebates, is that theoretically he has a big problem: ask yourself this question: if there is a negative externality in someone’s purchase or non-purchase, and you fail to account for the elimination of the externality (shifting costs to insured, pre-existing condition exclusion) in your calculations of “tax”, you are not doing an honest before/after comparison.

But, what do you expect from an economist.

I expect more.

Andrew' September 3, 2013 at 11:27 am

What is your net benefit from that trivial $600, Bill?

Andrew' September 3, 2013 at 11:28 am

I’ll do it for you. What if that forces the marginal upstart insurers out of business because their admin costs are higher? Your benefit is negative.

Bill September 3, 2013 at 5:14 pm

Forcing marginal upstart insurers out of business….if they are competitive, or they have or less expensive than incumbents, they will do just fine. If by upstart you mean they need to have informed shareholders or informed bankers, then they need either to suceed. If they are not competitive, then what? Welfare for an uncompetitive firm?

As an antitrust lawyer, I don’t have much belief in capital barriers to entry, particularly those that can be overcome by borrowing from either a bank or the market if you are competitive ….but if you are not competitive, tough.

Bill September 3, 2013 at 5:47 pm

Also, Andrew, the ACCA created ACOs which will compete with insurance carriers. So, rather than fewer competitors, there will be more, as part of the exchange. Insurance brokers may not like it, however.

Marie September 4, 2013 at 11:25 am

Our household at just above federal poverty level has paid our insurance company $18,000 in the last three years for a catastrophic plan, drawing almost nothing.

This year they gave us a $65 rebate. Whoohoo.

They also have moved to billing monthly and charging $5 a bill if we don’t let them draw automatically from our checking. Whoohoo.

Just got their notice that if we want to stay with them after January our $10,000 deductible will move to $12,000, benefits will increase only be a disappearance of a negligible rider, and our premium will nearly double. Whoohoo.

We will, of course, be moved on to Medicaid and the exchanges, which will in theory pay for everything. The promise is it will get much better after January. To date, ACA has taken away the two options we have had (one family member on a state pool which will cease to exist, this policy will, of course, be one we can’t keep) and increased our costs over the last few years. The exchanges in our state, I understand, are not even set up yet even though we’re supposed to start signing up in October. The federal pool they’ve had for folks with pre-existing conditions prior to full ACA went bankrupt and stopped taking people. So, if we get “free” or cheap health financing next year, that will be a burden relieved for us poor folk, but so far we’ve only had extra burdens stacked on, so I’m not holding me breath.

So benefits on the books? Still imaginary as far as I can tell. But costs have been written in ink for quite a while.

Carrie September 4, 2013 at 4:02 pm

If your premiums went down, you are lucky, but that is not the case for most people. When I bought our family policy on the individual market in late 2010, the phone rep made a point of telling me that the premium would be going up the next January because of the ACA, and it has gone up every year. So many of the increases have been baked in for a while now.

Also, correct me if I am wrong, but if you have a high income, your taxes have increased, have they not. So, you are paying for those ER free riders, one way or the other.

Marie September 4, 2013 at 6:10 pm

Our insurance just sent us the paperwork, and our premium would nearly double in January. Of course, we can’t afford that, so essentially the private insurance companies are going to push everyone independently insured onto the exchanges or onto an employee benefit plan. Be very curious to see if they’re going to double premiums for corporations buying group plans, also.

It seems to me obvious that there will be a gap where people start to lose subsidies as they earn more. So you’ll see folks without employee insurance making more money and living better up to a point, then hitting that gap and making more money but living the same, then exiting the gap and making more money and living better. Can’t see how it’s fair, but I doubt it’s the end of the world. In reality, how many people are in a situation where they will be buying their own health care and creeping up in income out of the subsidy zone? Doesn’t seem like that many folks.

Bill September 4, 2013 at 7:40 pm

Carrie, Re: “the phone rep made a point of telling me that the premium would be going up the next January because of the ACA, and it has gone up every year.”

I get a kick out of your gullibility. The broker/agent is going to be out of a job with exchanges because they disintermediate this intermediary. They were the folks lobbying against exchanges because it will reduce their income.

I’ve got a bridge for you.

Z September 3, 2013 at 2:43 pm

Probably by relying on arithmetic instead of magical thinking. Cost shifting is great for vote buying (what do you think that $600 was for? Your looks?), but it always results in higher costs over all.

Adam September 4, 2013 at 9:21 pm

Bill, look up “income and substitution effects”. If you manage to comprehend what you read, you’ll spare many people from the pain of face-palming at your comments.

Ed Hamilton September 3, 2013 at 10:57 am

Do you expect this massive deception by omission will end soon?
“The Public Be Suckered”
http://patrick.net/forum/?p=1223928

byomtov September 3, 2013 at 6:23 pm

Mulligan’s summary doesn’t say much, and the paper itself is gated.

Hard to evaluate his argument.

Bill September 3, 2013 at 7:32 pm

You can go to his website and get the analysis from other papers.

mulp September 3, 2013 at 8:12 pm

Ironic isn’t it. Advocating for the right to be a free rider but publishing in a forum that requires payment is not part of the elitist club because tax paying non-elite free riders should not be allowed to see the papers often funded by taxpayers and provided free to those funded by taxpayers.

Mkelley September 4, 2013 at 4:32 pm

A guy at work now thinks this will work out great for him. He will retire from his present good-paying job, go on Obamacare and get a subsidy because his income will then be low, and work under the table to make more money. What could go wrong?

Bill September 4, 2013 at 7:43 pm

You will probably see more 62 year olds retire, but they will not get a subsidy (look up the eligiblity requirements for yourself), but they will make room for younger folks since they can now get insurance without an employer.

Marie September 5, 2013 at 7:59 am

You could always get insurance without an employer. Even 62 year olds, although you might have had to move to a new state (about 15 didn’t have high risk pools). That’s a myth we were fed that trapped a lot of people in jobs and that helped propagandize through the ACA.

http://www.naschip.org/states_pools.htm

Of course, all these programs end January 2014.

bob September 5, 2013 at 1:53 pm

So if I have a car, and a law is passed that penalizes me if I do not have one, and gives subsidies to those that can’t afford one, does my marginal tax rate increase, when I was already paying for my car?

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