Saturday, December 22, 2012

Flashback: The Labor Economics of the Individual Mandate

20 years ago, experts used to recognize that "solving" the health uninsurance problem would create labor market problems.

The individual mandate triggers the added problem of confronting low income families with relatively high losses in incremental disposable income as earned income rises. For example, suppose insurance for families at or below the official poverty line were fully subsidized by the government ... [the] melting away of the subsidy is equivalent to a marginal income tax rate for the loss of health insurance subsidies alone of about 35 percent ... Added to federal income taxes, Social Security taxes, and the phaseout of the earned income credit, the individual mandate thus would present millions of low-income American families with total marginal tax rates in excess of 75 percent. Such high marginal tax rates may well make unemployment and welfare an attractive alternative to working. [emphasis added]

The was published in 1994. Guess who wrote it?

...Alan B. Krueger and Uwe E. Reinhardt. Krueger is now Chairman of the President's Council of Economic Advisers. Interestingly, 15+ years later the Administration did not mention high marginal tax rates as one of the unfortunate byproducts of the ACA, and no adjustment has been made for their depressing effects on the labor market and on government revenues.  Moreover, Krueger and Reinhardt (and dozens of other accomplished economists) signed a 2011 letter to congress touting their "strong conclusion that leaving in place the Patient Protection and Affordable Care Act of 2010 will ... promote more rapid economic recovery in the immediate years ahead."

Now it is considered partisan to acknowledge the basic economics of incentives, and that "[ACA propoents] can honestly say that economic and clinical claims made on behalf of the repeal effort are generally viewed as non-substantive."

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