Saturday, March 5, 2016

Employer Penalty Amount Finalized

Next week the Dept of HHS will publish the final rule for, among other things, the per-full-time-employee amount that large employers will be penalized for not offering federally approved health insurance coverage.

2017 $2,265

These are set according to the HHS Secretary's "Premium Adjustment Percentage."

As explained in my book, the employer penalty has a special business tax treatment that makes it more expensive than employee salaries. The salary equivalent of the employer penalties are:

2014 $3,046
2015 $3,174
2016 $3,299
2017 $3,449

After increasing 4 percent in each of the first two years, the lasted annual increase is 5 percent.

Another interesting way to look at it is the number of hours that a $7.25/hour worker has to work to create enough value for his employer to pay the penalty on his behalf (let alone pay the employee's wages):

2014 8.1 hours per week, 52 weeks per year
2015 8.4 hours per week, 52 weeks per year
2016 8.8 hours per week, 52 weeks per year
2017 9.1 hours per week, 52 weeks per year

In other words, only after the ninth hour of work in 2017 will the penalty be paid and there will be value creation that can go toward employee wages, employer profits, or other taxes.

Fortunately, taxing employment relationships to the tune of 9 hours per week, every week of the year, has essentially no adverse effect on those relationships.

Friday, January 29, 2016

Mulligan vs Fed Forecasts

In 2014, my book was predicting that Real GDP per capita would grow 0.2-1.5% per year through 2016-17.

At the same time, the Federal Reserve Board was predicting 1.2-2.3% per year.

There is still time to go, but as of 2015-Q4, the actual result has been 1.35% per year over 8 quarters.

Tuesday, January 12, 2016

The Labor Tax Hidden in Republican Health Plans

Reproduced from http://leadershipprojectforamerica.org/

Several Republican candidates’ health care plans contain a large hidden employment tax that would slow down the nation’s economy.

Our federal systems of taxes and subsidies are known to discourage work by levying more taxes on (and paying fewer benefits to) workers than non-workers.

The only important exception comes with the tax treatment of health insurance obtained on the job, which workers can exclude from the income that is subject to payroll and income taxation. The exclusion generates an annual average of $4,000 in tax savings for each of the 75 million workers that take advantage of this employment perk.

Jeb Bush, Ted Cruz and Marco Rubio, to name a few, agree that workers should lose this perk that gives them a $4,000 reason to work rather than not.

They are not against work, of course, but are against uneven taxation. By making job-related health insurance a unique tax shelter, the exclusion leads to excessive health spending – “Cadillac” health plans – and distorts the composition of economic activity toward businesses that have advantages in providing the shelter.

Rubio, for example, proposes tax credits for purchases of individual health insurance and putting “the tax preference for employer-sponsored insurance on a glide path to ensure that it will equal the level of the credits.” The credits are intentionally limited so that they do not favor expensive plans any more than economical ones.

Introducing a credit for purchases in the individual market, as the Republican candidates propose, is an especially new opportunity for people who do not work and thereby further pushes the federal thumb on the scale favoring not working over working.

Take a 62-year-old worker who is considering retirement. A number of federal policies encourage him to retire sooner rather than later by replacing – at the expense of all taxpayers – part of the wage income lost upon retirement. A retiree pays less income tax, pays no payroll tax, and gets a monthly check from Social Security, whereas the 62-year-old who continues work would not get these privileges. Republican plans would change this by giving him a new tax credit if he retires early.

The special treatment of the health insurance obtained at work is the only major pro-work incentive that the federal government currently has for this 62-year-old. The Republicans are achieving their even-tax objective by reducing the incentive to work.

By my estimates, the economic damage done by further reducing incentives to work is not worth the enhancements to health care delivery that would come with taxing things more evenly. I am not aware of any study even attempting to show otherwise, because the studies of health insurance delivery largely ignore the labor-market burdens created by policies that promise to make health care better.

Just this week, Congress delayed until 2020 Obamacare’s “Cadillac” excise tax on health plans that are provided by employers, which is Democrats’ answer to the uneven taxation problem. But the Cadillac tax does a lot less to discourage work than the Republican approaches do (I cannot say the same about the rest of Obamacare), because the Cadillac tax still lets workers keep much of their perk.

To their credit, Republican candidates have other plans to encourage work, especially by bringing down personal income tax rates. But, in order to get the economics right, they should not be double-counting the benefits of reducing rates. By eliminating or partly offsetting the health insurance exclusion, tax rate reductions are needed just to get the labor market back to where it would have been if the exclusion had continued.

To put it another way, more growth would come from cutting rates and keeping the exclusion in place than would come from cutting both the rates and the value of the exclusion together, which is what many Republicans are proposing.

Bipartisan neglect of the work disincentives that come with health reform is a major reason why we continue to have a Pinto economy. We’re left hoping that tax plans might create jobs faster than health plans kill them.


Casey B. Mulligan is a Professor of Economics at the University of Chicago and author of Side Effects and Complications: The Economic Consequences of Health-Care Reform published by the University of Chicago Press and featured at acasideeffects.com.

UK-US study cited in the Wall Street Journal

Yesterday's WSJ discussed work incentives in the U.S. and the U.K.

The study is here.

A summary is here.

Monday, December 21, 2015

Candidates' Health Care Plans

This is not to endorse "planning" but for convenience I have made a list of links to Presidential candidate's health care plans.

Read about America's current plan here.

Tuesday, December 15, 2015

Robert Reich: Changing the Facts to Fight the Good Fight

Yesterday Robert Reich claimed that

"Most people who lose their jobs don't even qualify for unemployment insurance."

As you can see from my cut and paste of his quote (italics added), he cited a newsmax article.  But that article lists several reasons why the unemployed choose not to apply for benefits.  On this issue of eligibility, the article says that most UNEMPLOYED do not qualify.  The reason is typically that the non-qualifying unemployed DID NOT LOSE THEIR JOBS.  As the article says,

"Unemployment benefits are only available to those who lost a job through no fault of their own. ... Many of the unemployed are recent college or high school graduates who are now looking for work. Others may have quit their jobs, or they left work years ago to take care of children and are now job-hunting again. People in those categories make up 52 percent of the unemployed."

You would think that Mr. Reich knows the facts because he was IN CHARGE OF THE FEDERAL DEPARTMENT OF LABOR, which is intimately involved with unemployment insurance benefits.  But he also knows a good narrative, which is that job loss is typically endured with no government help.


Saturday, December 12, 2015

Timothy Jost poses an economics question

In reading the [CBO's analysis of ACA marginal tax rates and the labor market], questions that occurred to me, admittedly a non-economist, included why there is no accounting for the increased employment of health care workers which surely must accompany the coverage expansions?

The answer is:
  • when we redistribute income for the purposes of paying for some people's health care, that likely creates additional jobs in the process of supplying health care to the ACA beneficiaries.
  • But we cannot forget about the other end of the redistribution. Somebody is paying for this, either by paying taxes or loaning money to the government, and that's funds that the payers cannot spend on other things. So there's a reduction in the employment of people who would be supplying the payers (whatever it was that they would have spent money on: anything from food to forming new businesses).
  • The bottom line for labor demand hinges on a comparison of the labor-intensity of healthcare supply and the intensity of supplying those other things.

In effect, CBO and many others assume that they are equally labor intensive, so that there is no net aggregate-labor-demand effect. Only the composition of labor demand is changed.  (If I had to say how the "true" comparison works, I would say that just about anything for low-income people is less labor-intensive than the things bought by high-income people, but this gap is small in comparison to the marginal tax rate effects).


I also addressed a similar question in my earlier Redistribution Recession.

Mr. Jost has been so busy digesting and summarizing ACA regulations (that you for that, sir!) that he probably hasn't had time to look at my books on the economics of Obama-era social programs.

Wednesday, December 9, 2015

Fiscal Policies and the Prices of Labor: A Comparison of the U.S. and the U.K.

Many countries of the world experienced an unusually deep and long recession after 2007.  Over the same time frame, several facets of fiscal policy were changed, especially policies related to taxation and safety net programs.  The purpose of this paper is to compare changes in fiscal policy parameters as they affected the incentives of middle-class Americans and British to be employed.  The U.K. had a “stimulus programme” followed by an “austerity programme.”  The U.S. federal government also passed what it called a “stimulus package,” followed by a major health reform.
Policy labels acquired during legislative processes are not necessarily indicative of economic fundamentals.  This paper comparably quantifies fiscal policy in terms of one of the fundamentals: the wedge between the supply price of labor and the demand price of labor.  It finds that the two countries have been different in terms of the evolution of employment taxation, on average and across demographic groups.  The American stimulus reduced average incentives to be employed by increasing cash and health benefits for the unemployed and for families with low incomes, whereas the British stimulus did the opposite by temporarily reducing its value-added tax rate and permanently reducing its basic income tax rate.  The British austerity program pushed incentives in the opposite direction as its stimulus by permanently increasing its payroll and value-added tax rates.
            The evolution of employment has also been different in the two countries.  Figure 1 displays an index of each country’s employment rates for prime-aged people.[i]  Employment fell sharply in both countries during the crisis, although less so in the U.K.  The U.K. employment recovery began earlier, and by the end of 2014 the U.K. employment rate had exceeded pre-crisis levels.  Because taxes are one (among many) of the determinants of labor market performance, comparable tax measures are necessary for carefully investigating and comparing labor market outcomes.  This paper provides tax measures, and shows how changes in tax rates are linked to specific legislation.

Taxes potentially affect work decisions in a variety of dimensions, for example: the number of weeks worked per year, the number of hours worked per week, whether to work at all during a year, and the amount of effort to put into work.  Due to the prominence of the business cycle during this period and the sheer size of gross monthly employment flows, this paper focuses on the weeks-per-year margin holding constant weekly hours and the probability of not working at all during a calendar year.  In the 21st-century U.K., for example, the single largest quarterly employment decline for the non-elderly population has so far been 0.3 million, as compared to at least 2.6 million non-elderly people who join or separate from an employer during the average quarter.[ii]  Adding just one week out of work before joining, or after separating, would therefore create a remarkable net reduction in the number employed at a point in time.  Also, the large majority of unemployment spells last less than 12 months, and some of those lasting 12 months do not blanket an entire tax year.[iii]
I follow the usual steps of public finance analysis and first look at the tax wedge – the gap between supply and demand prices created by a tax or subsidy.  The next step, left for future research, is to draw conclusions about the wedge’s behavioral effects and ultimate incidence.  Thus, with one exception noted below, the estimates in this paper do not require any assumption about the relative incidence of labor taxes on employers and employees.
Section I discusses the United Kingdom, demonstrating how many of the tax changes were ultimately offsetting in terms of the employment incentives they created.  The primary exception relates to the subpopulation receiving child tax credits, because the phaseout (sometimes referred to as “taper”) rate of those credits increased with little change in the range of incomes over which the phaseout applies.  Section II shows results for the United States, where employment disincentives have increased over time, especially (but not exclusively) among unmarried workers.  Section III shows the evolution of the employer cost and employee benefit from work – the gap between the two is the employment tax wedge – by country for workers in the middle of the wage distribution.  Section IV concludes.




[i] Both series are from the Organization for Economic Co-operation and Development (hereafter, OECD), via the St. Louis Federal Reserve’s FRED database.  In 2007-Q4, the U.K. and U.S. employment rates were 81.5 and 79.8, respectively.
[ii] Average quarterly gross flows are from Gomes (2012, Figure 1), for 1996 through 2010.  Quarterly net employment changes are from the OECD, via the St. Louis Federal Reserve’s FRED database, and, for comparability with Gomes, for the age 16-64 age group. 
[iii] The St. Louis Federal Reserve FRED data series UEMPMED shows that the U.S. median duration of unemployment peaked at 25 weeks in June 2010.  Also note that, for example, an 18-month nonemployment spell lasting from March 2009 to September 2010 nonetheless involves positive weeks worked in both calendar years (tax years in the U.S. coincide with calendar years).

Tuesday, December 8, 2015

Employer penalty amounts for 2016 and 2017

The ACA's employer penalty increases every year. It began in 2014 (although not enforced in that year) at $2,000 per full-time employee-year (over 30 employees). Its amounts in subsequent years:

2015 $2,084
2016 $2,166
2017 $2,265

These are set according to the HHS Secretary's "Premium Adjustment Percentage."

As explained in my book, the employer penalty has a special business tax treatment that makes it more expensive than employee salaries. The salary equivalent of the employer penalties are:

2014 $3,046
2015 $3,174
2016 $3,299
2017 $3,449

After increasing 4 percent in each of the first two years, the lasted annual increase is 5 percent.

Another interesting way to look at it is the number of hours that a $7.25/hour worker has to work to create enough value for his employer to pay the penalty on his behalf (let alone pay the employee's wages):

2014 8.1 hours per week, 52 weeks per year
2015 8.4 hours per week, 52 weeks per year
2016 8.8 hours per week, 52 weeks per year
2017 9.1 hours per week, 52 weeks per year

In other words, only after the ninth hour of work in 2017 will the penalty be paid and there will be value creation that can go toward employee wages, employer profits, or other taxes.

Wednesday, November 25, 2015

My Impression of Woodrow Wilson

Perhaps my favorite economics book is John Maynard Keynes' Economic Consequences of the Peace, which used the Laffer curve (before Laffer himself was born) and other economic ideas to correctly predict disaster following the Treaty of Versailles (ending World War I).

Woodrow Wilson appears throughout the book, at best as a buffoon and at worst as a villain. Keynes writes,

The President was ... lacking that dominating intellectual equipment which would have been necessary to cope with the subtle and dangerous spellbinders.... (p. 25)
...the President had thought out nothing; when it came to practice his ideas were nebulous and incomplete. He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered from the White House. (p. 27)
...he was in many respects, perhaps inevitably, ill-informed as to European conditions. And not only was he ill-informed--that was true of Mr. Lloyd George also--but his mind was slow and unadaptable. (p. 27)

(page numbers are from the Royal Economic Society's 1971 edition).



Keynes may not have told the truth, but I have wondered what the scholars at Princeton thought about having the "slow and unadaptable" mind put on a pedestal on their campus.

Princeton is probably thinking about selling the naming rights of the Wilson buildings etc. But if they wanted to stick with a Princeton President, I am a fan of William G. Bowen, who (with Chicago alumn T. Aldrich Finegan) wrote