BEYOND THE NUMBERS
What CBO Really Said About Health Reform and Work
Wait a minute, say some more thoughtful conservatives; we should acknowledge that, along with making it more financially feasible to stay home with the kids, some ACA provisions can, for some people, reduce the financial rewards from taking a second job or working longer hours to earn extra income. In effect, those provisions “tax” the earnings from labor and can discourage people from supplying as much labor as they would without the “tax.”
One group that the ACA would likely affect in this way, CBO says, are low-and moderate-income households that receive subsidies to help them purchase insurance through the ACA’s marketplaces (rather than from their employer). As CBO notes, the phase-out of the subsidies affects net income similarly to a direct tax on earnings, and will likely have similar effects on labor supply.
All else being equal, policymakers should want to keep any adverse effects on labor supply from marginal tax rates as small as possible. But all else is seldom equal and, in this case, policymakers face well-known and inherent trade-offs in designing income-based financial assistance programs.
To reduce the implicit tax on earnings from a phase-out, policymakers would have to extend it farther up the income scale — but that would add significantly to its costs. We could reduce those costs by reducing the base benefit for those with the greatest need, but that would defeat the main purpose of the subsidies in the first place.Click here for the full post.