The CBO now estimates that Obamacare will reduce the labor supply by the equivalent of 2.4 million jobs by 2024. The main reason: the implicit marginal tax rates created by the withdrawal of the Obamacare tax subsidies in the health insurance exchanges. Like unemployment insurance, food stamps, and other welfare benefits, government help gets smaller as incomes rise and this is an implicit tax on labor.
The CBO’s estimate is based on the work of University of Chicago labor economist Casey Mulligan, who estimates that the average marginal tax rate in the economy is 47% — meaning that workers get to keep a little more than half of what they earn. Mulligan says the real loss of labor due to Obamacare will probably be twice what the CBO is reporting. He also estimates that about half of the excess unemployment we have been experiencing in recent years is due to the combined effect of all entitlement programs.
Enter Paul Krugman, who week after week, month after month, in his New York Times columns has been telling us that there is no evidence that entitlement spending reduces work effort. He responds to the CBO report by endorsing it. He explains:
[T]he incentive to work will be somewhat reduced by health insurance subsidies that fall as your income rises.
But he also says this is actually a good thing:
If you lose your job, you suffer immense personal and financial hardship. If, on the other hand, you choose to work less and spend more time with your family, “We don’t sympathize. We say congratulations.”
By the way, there is not a chance that Krugman has been unaware of Casey Mulligan, even though pretending not to know about his work. Casey is a regular blogger at the very same newspaper Krugman writes for.
In golf, a “mulligan” is an illegal do over. It asks everyone to forget the last stroke. Krugman seems to be hoping we will all forget his previous columns. The latest is appropriately entitled “Health, Work, Lies.”
As for Krugman’s claim that Republicans are mischaracterizing the CBO report, the CBO Director sides with the Republicans:
The head of the nonpartisan Congressional Budget Office delivered a damning assessment Wednesday of the Affordable Care Act, telling lawmakers that ObamaCare creates a “disincentive for people to work,” adding fuel to Republican arguments that the law will hurt the economy.
The testimony from CBO Director Douglas Elmendorf comes after his office released a highly controversial report that detailed how millions of workers could cut back their hours or opt out of the job market entirely because of benefits under the health law.
The White House and its Democratic allies accused Republicans, and the media, of mischaracterizing the findings. But Elmendorf backed Republicans’ central argument — fewer people will work because of the law’ subsidies.
“The act creates a disincentive for people to work,” Elmendorf said, under questioning from House Budget Committee Chairman Paul Ryan, R-Wis.
[Cross-posted at John Goodman’s Health Policy Blog]
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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.