Obamacare and the Labor Market

by Benjamin Domenech on 12:17 pm May 28, 2010



Douglas Holtz-Eakin of the American Action Forum has a new report (PDF) out on how Obama’s law will effect labor markets in coming years, and it’s notable particularly for the points it includes on marginal tax rates:

The effective marginal tax rate is the answer to the question: “If I earn $1 more, how much less than $1 do I get to save or spend?” If you can keep that full dollar for your disposal, the effective marginal tax rate is zero. If earning another dollar does not raise your disposable income by even a penny, the effective marginal tax rate is 100 percent.

Chart 1 shows the EMTRs for a two-earner family with two school-age children, one of whom is in college. One line is the EMTR based on income tax law prior to the PPAC, while the second displays the damaging increases in the EMTR from the phase-outs in the EMTR. As a family’s income rises above 133 percent of FPL, they will receive their subsidy to purchase health insurance in the exchanges. In turn, however, as their efforts yield higher income, subsidies are clawed back or effectively taxed away. The current law policies show that there are already some lower income families facing EMTRs above those in the middle class. But the barrier to success imposed by PPAC is even more striking.

Thus, for every additional worker that faces a loss in employer coverage we have an additional worker who faces a greater difficulty in getting ahead when taking an extra shift, finding a way for a second parent to work, or investing in night school courses to qualify for a raise. Additional work will mean handing the government as much as 41 percent of the additional income earned. The bigger the EMTR, the higher the hurdle to moving up.

I wrote about this issue back in March, in my piece on Obamacare’s Two Americas.

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