Tuesday, July 14, 2009

Libertarian's Nightmare Gets Even Worse

The House is talking about mandating the purchase of health insurance for employers with aggregate payrolls as small as $250,001 per year.

Larry Summers wrote once a nice paper explaining how mandated benefits are not the same as a tax, because the worker gets at least some benefit when his employer purchases employee benefits, whereas all of the benefits from employer tax payments go to the government.

Nevertheless, mandating health coverage is in large part a tax, especially for small businesses for whom a large fraction (I would guess about 1/3) of the costs of providing health insurance are insurance administrative (as opposed to obtaining health care, or at least health care administration).

If and when such a law goes into effect, a number of employers may want to shrink their payroll to get it small enough to avoid the mandate: perhaps by moving full time workers to part time, or firing some employees.

Obviously, big brother will have red tape that is designed to penalize such opportunistic payroll policies. In case the red tape doesn't work, the threat of law suits from affected employees may.

So the savvy employer will make these payroll adjustments well before the law is passed and goes into effect. For example, if he thought the law would go into effect in Fall 2009, he might start firing people and moving others to part time in the Fall of 2008.

Of course, the above is purely hypothetical. It wouldn't actually happen! Neither would these:

  • minimum wage hike
  • means-tested mortgage modification
  • mean-tested student loan modification
  • unemployment insurance extensions
  • state income tax hikes,
  • IRS means-tested enforcement of prior tax debts
  • marginal federal tax rate hikes on the "rich"!


Boomer said...

It is amazing to me that politicians can advocate policies such as this and claim with a straight face that the policy will either create jobs or have no effect on employment. Bastiat should be required reading for any public office.

TGGP said...

Bryan Caplan is with you.