This is what America wanted? ObamaCare Work Disincentives: 4 Cliffs Hit Employees
In the time of Caesar, all roads led to Rome. In the time of ObamaCare, seemingly every path heads straight for a cliff.
The health law is filled with cliffs where the returns for more work take a nose-dive.
The Congressional Budget Office has estimated ObamaCare will "reduce the amount of labor used in the economy by roughly 1/2 a percent" — about 800,000 full-time jobs. It seems likely that 4 especially steep cliffs — including 2 where marginal tax rates can approach 100% or more — will factor into work & hiring decisions.
THE 50TH EMPLOYEE CLIFF: For companies with 49 workers that do not offer its employees health coverage, the hiring of just one more worker would carry a penalty of $40,000.
A firm with at least 50 workers that doesn't offer coverage must pay a $2,000 fine per worker (minus the first 30 workers) if even one of its employees receives ObamaCare subsidies.
Likewise, even if a business with 50 employees offers coverage, it would still face up to a $3,000 charge for each worker who nevertheless claims Obama-Care subsidies.
The law gives workers this option when employer coverage is deemed unaffordable because it costs more than 9.5% of the worker's household income.
France has 2.4 times as many firms with 49 employees as with 50 due to labor regulations that take effect with the 50th hire, BusinessWeek has noted.
How many firms will institute a hiring freeze to avoid ObamaCare penalties is unclear, but the risk is that the US will go down a similar path as France.
THE LOW INCOME CLIFF: At 200% of the poverty level is a dividing line. Deductibles for married couples on one side may be $300 vs.$3,500 on the other, according to one estimate provided to the Kaiser Family Foundation by Towers Watson.
In addition, a family at 200% of poverty would pay $830 less for subsidized insurance than a family at 225% of poverty, The Kaiser Family Foundation's health subsidy calculator shows.
Then factor in higher regular income & payroll tax payments as well as the loss of the earned income tax credit due to higher pay.
Bottom line: It's not hard to see how the next $5,000 or so in income for a family at 200% of the poverty level could be completely offset by higher taxes and smaller government subsidies.
THE MODERATE INCOME CLIFF: The cliff is even steeper for families at 400% of poverty. Just past that point, families would lose eligibility for ObamaCare subsidies, which can get quite valuable for older workers.
Kaiser's calculator shows that an eligible 60-year-old individual in a midcost coverage region would get a $5,800 subsidy in 2014, equal to 13% of the worker's $46,000 in wages. EARNING JUST A FEW HUNDRED OR EVEN A COUPLE OF THOUSAND DOLLARS MORE WOULD AMOUNT TO A BIG PAY CUT.
OLDER WORKERS’ CLIFF: Lastly, consider a 62-year-old worker with $38,500 in income,$4,000 from investments. Such a worker could qualify for a $6,500 ObamaCare subsidy, paying $3,700 toward premiums with perhaps a $2,000 deductible.
But if she retires and claims Social Security, with roughly $14,000 a year in benefits, her ObamaCare premium subsidy would rise to $9,400 with almost no deductible.
Factoring in a state & federal tax bill of $6,500, that worker would have an after-tax, after health cost (premium & deductible) income of $26,000, vs.$17,100 in the old early-retirement scenario. In other words, the pre-tax gap between working and retiring early would shrink from $20,500 to just $8,900.
That's not to say she would be better off exiting the workforce early. She would be better off working to ensure a secure retirement. But in recent years, about half of nondisabled workers have claimed Social Security at 62. ObamaCare's extra dollop of subsidies will continue to tilt incentives away from work. http://news.investors.com/101912-630136-obama...