The argument that government subsidies from redistributed wealth is a disincentive to work is hardly new. Conservatives have made that argument that for decades, and it has been a recent component of the debate over whether to keep extending long-term unemployment benefits that originated as an “emergency” measure five years ago in the midst of the Great Recession’s massive job losses. It is, however, novel to see the Barack Obama White House embrace that effect as a feature of its central social-engineering program, the Affordable Care Act.
This week, the CBO issued a new report on the economic impact of the ACA, better known as Obamacare, and the new figures stunned observers. Previously, CBO estimated that the bill would reduce the workforce by 800,000 over its first decade. The new analysis tripled that impact, estimating that the ACA would depress the job market by 2.5 million “full-time-equivalents” (FTEs) — wording that touched off a fact-check and claims war.
Republicans seized on the report to substantiate what they have argued all along – that the ACA would end up costing the economy jobs, and the cost would be enormous. On this point, the CBO also agreed, increasing the cost estimate by more than double , from its initial estimate of $848 billion over its first decade to more than $2 trillion. That alone shows that the claimed deficit neutrality of Obamacare was a myth, which the GOP has claimed all along.
The issue on FTEs is more subtle, however, than layoffs or job creation. The CBO carefully defined its findings not as a loss of job demand in the marketplace, but as a loss of job supply. Washington Post fact-checker Glenn Kessler pointed this out in a sharp rebuke, citing the specific language in the report.
The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what would have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week).
In other words, the impact from the bill comes from a disincentive to work, thanks to the subsidies provided by Obamacare for purchasing the mandated insurance coverage. The White House loves this explanation, even though it has insisted that the same incentives do not apply on extending unemployment insurance.
“This is about giving Americans more choices,” said Gene Sperling, the director of Obama’s National Economic Council to CNN on Tuesday. “These people who are working more than they want to simply for healthcare, some of them will have the option of working a little less.”
However, Democrats had a little difficulty keeping that talking point about FTEs and not equating actual jobs and people in line with this defense on “choice.” Senate Majority Leader Harry Reid also argued that the report offers hope for people to become “free agents” and avoid “job lock.” Aaron Blake reported on Twitter that Reid’s fellow Democrats on Capitol Hill associated that directly with the FTE figure from CBO: “New line from Dems on CBO report: It "will enable more than 2 million workers to escape 'job-lock.'”
Later, he named Nancy Pelosi – who once argued that Congress had to pass the bill to discover what it contained – as the one pushing this new tack. "Yesterday, the CBO projected that by 2021 the Affordable Care Act will enable more than 2 million workers to escape 'job-lock' – the situation where workers remain tied to employers for access to health insurance benefits,” Pelosi’s office stated.
So, FTEs do equate to people after all.
The problem with the job-lock/free-agent argument is still the CBO report. The figure does not predict the number of “free agents” or job-switchers. It projects the net reduction in hours worked in the American economy, and that’s a big problem, especially for a system that relies on tax revenue for the subsidies that fuel the system.
A reduction of 2.5 million FTEs from Obamacare would result in a reduction of $80.5 billion each year in gross compensation, even at the low-income average of $35,000 a year. That means less economic activity, and lower tax revenues, thanks to the decrease in income that the loss of 2.5 million FTEs entail — no matter how they disappear.
Besides, if the argument in favor of cheering subsidized disincentives to work is to be offered, then we should know how those subsidies work and who benefits. The Obama administration has insisted that the Obamacare subsidy structure benefits middle and working-class families that most often feel the squeeze from government programs. A new study from the liberal Brookings Institute contradicts that claim. Instead, as the study shows, the redistribution comes from all but the bottom quartile of earners.
“On net and under the broadest income measure, the gains and losses cause small proportional drops in income for Americans in the top three-quarters of the income distribution which offset the larger proportional gains obtained by Americans in the bottom quarter of the distribution,” write Henry J. Aaron and Gary Burtless, and that is under a broader definition of income than the Census Bureau uses.
When the study breaks down the distribution by tenths rather than quarters of the population, only the bottom 20 percent will see a net gain in income. In fact, the two steepest drops in average income come from the third and fourth tenths from the bottom, 0.9 percent and 1.1 percent respectively. The top tenth will only see a reduction of 0.3 percent in average income.
Obamacare, then, not only discourages work and reduces economic activity and tax revenue through the payment of subsidies — that redistribution impacts the working and middle class disproportionately. One could hardly make a better case for repealing Obamacare, no matter how much confused spin and happy talk emanate from the White House and Capitol Hill Democrats.
And now that we all agree that subsidies discourage work, let’s have a real discussion about extending “emergency” long-term unemployment benefits, too.
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