A recent Congressional Budget Office report on the economy added fuel to conservative criticisms of the Affordable Care Act, suggesting that U.S. workers will work up to 2 percent fewer hours — equal to about 2.5 million workers dropping out of full-time work.
But beyond the obvious political criticism, the CBO report should give both liberals and conservatives pause in their preference for means-tested programs for poor and moderate-income Americans.
Means-tested programs such as Obamacare that tie benefits to income can create large effective tax increases once an individual reaches a certain income threshold and loses benefits that were available below that threshold. This discourages low- income Americans from working more, or pursuing other opportunities to climb the economic ladder.
Reforming safety-net programs such as Obamacare so that they don’t penalize working more hours or taking a better job would allow both parties to claim victory in the battle against inequality — helping more poor families to lift themselves out of poverty along the way.
The health-care law’s pernicious labor market and tax effects have been widely discussed, and not only in conservative economic circles. In 2012, David Gamage, a former Obama administration Treasury official, wrote that the law created high marginal tax rates for some eligible enrollees (those people who earn up to about 200 percent to 250 percent of the federal poverty level). And because employers are penalized for not offering “creditable coverage,” Gamage also noted that it would actively discourage employers from hiring some low or moderate-income workers when the cost of maintaining mandated coverage exceeds the economic value of their labor.
Economist Casey Mulligan picked up on this theme last summer, writing that Obamacare’s generous subsidies will encourage more workers to work part time, even when their employer offers health insurance for full-time employees.