October 23, 2012 10:29 AM CDT
ObamaCare Work Disincentives: 4 Cliffs That Hit Employees, Firms →
The Congressional Budget Office has estimated ObamaCare will "reduce the amount of labor used in the economy by roughly half a percent" — about 800,000 full-time jobs. It seems likely that four especially steep cliffs — including two where marginal tax rates can approach 100% or more — will factor into work and hiring decisions.
The 50th employee: 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.
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.
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.
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 and federal tax bill of $6,500, that worker would have an after-tax, after health cost (premium and 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.