Why is the White House cheering disincentives to work?
posted at 11:01 am on February 6, 2014 by Ed Morrissey
The short answer to the headline question is that they don’t have much choice. After years of promising to bend cost curves downward, provide no disruption to existing insurance plans or provider networks, and laughably insisting that ObamaCare would create four million new jobs almost immediately, the latest CBO report on the central “achievement” of Barack Obama and the Democrats leaves them with no fig leaf left to use. The work force will decline by 2.5 million full-time-equivalents, heavily on the lower-income side of the scale, and all of a sudden Democrats have gone from promising massive job expansion to an end to “job lock.” What else can they possibly argue, except that suddenly fewer jobs are great for the economy?
Of course, this is a disaster for upward mobility, which Paul Ryan explained when CBO Director Doug Elmendorf testified that of course subsidies provide a disincentive to work:
He declared, “[B]y providing heavily subsidized health insurance to people with very low income and then withdrawing those subsidies as income rises, the act creates a disincentive for people to work—relative to what would have been the case in the absence of that act.”
Elmendorf, a Democrat, tried to claim that these people who would “have less of an incentive to work” would be “better off,” but Budget Committee chairman Paul Ryan was having none of it.
Ryan replied, “I guess I understand the ‘better off’ in the context of health care. But better off in inducing the person not to work who’s on the low-income scale, not to get on the ladder of life, to begin working, getting the dignity of work, getting more opportunities, [raising] their income, joining the middle class, this means fewer people will do that. That’s why I am troubled by this.”
That’s not the only troubling aspect, either. In my column for The Fiscal Times, I point out that no matter how the economy manages to shed 2.5 million FTEs from what would have otherwise existed — layoffs, voluntary unemployment, or curtailed investment, and likely a combination of all these — the fact remains that tens of billions of dollars will come out of what the economy would otherwise have produced. And that has some big implications for economic growth and tax revenue, too:
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. Anew 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.
You can do this calculation at whatever average income level you want to assign a FTE, which the CBO avoids doing in its report. Even if it’s $25,000 a year — half of the average household income in the US — that comes to $62.5 billion that will not be in the economy annually by the end of the period. That means lower tax revenues at the same time we’re paying more and more subsidies for people not to produce.
The White House’s “Yay, disincentives!” message isn’t playing terribly well. The Chicago Tribune calls this disincentive process “not healthy for the nation”:
It does mean many workers will have less incentive to work. Some will gain welcome flexibility — if they have clung to jobs just to keep employer-based health care, they will have access to coverage that’s not conditioned on holding a job.
But, and here’s where the impact is likely pernicious, some will quit or work less precisely because they’ll now qualify for Medicaid or for subsidies under the law. In effect, they’ll have a government incentive to be less productive. Some higher-income workers also will have a disincentive — higher taxes under Obamacare — for providing more labor. That is, a disincentive to work.
Government subsidies that persuade people to be less productive are not healthy for the nation. They’re also costly. Which goes to the more alarming news that came out of the CBO this week.
The CBO — as close as you’ll get in Washington to a nonpartisan source of information — released its federal budget projections for the next 10 years. The prospect is bleak:
The agency projects that annual deficits will stabilize through 2017 but then will launch into a long rise. By the most useful measure — debt as a percentage of our gross domestic product — the CBO sees that number rising from 72.1 percent in 2013 to 79.2 percent by 2024. That would be the highest U.S. debt burden since the years after federal borrowing spiked to fight World War II.
The Obama administration has counted on impossibly rosy projections of future economic growth to get us out of the deficit hole. But when asked about that possible growth in the face of these disincentives, the White House’s Jason Furman had trouble squaring the two:
But when reporters asked Obama’s top economic adviser, Jason Furman, about this ill effect, he repeatedly dodged the question. Here’s a typical exchange:
Reporter: “If 2.5 million people change their choice about working, that is not a net drag on economic growth?”
Furman: “First of all, I haven’t accepted the number. There’s a lot of factors that go into that number, not all of them an uncertainty. And second of all, I’m saying that that whole analysis refutes the claim that this is about employers cutting back on jobs and increasing unemployment, and that has been a central argument against the Affordable Care Act. Instead, this analysis itself — which isn’t a complete analysis — but this analysis itself is about the choices that people make and the new options that they have.”
Reporter: “But you didn’t answer my question.”
Furman: “I could repeat that if that would help.”
National Economic Council chair and Obama adviser Gene Sperling also tried disputing the CBO figures. Dana Milbank explained earlier this week why that won’t fly, citing the many times the White House used CBO scoring on the more ambiguous legislation to justify it:
Live by the sword, die by the sword, the Bible tells us. In Washington, it’s slightly different: Live by the CBO, die by the CBO. …
Gene Sperling, Obama’s top economic-policy adviser, walked to the White House lawn and told CNN’s Wolf Blitzer that he rejected the finding. “When you have two parents and they’re both working full time to provide health care and they don’t feel they’re there to do homework with their kids and this allows one of [them] to work a little less because they have health care, that’s not costing jobs,”Sperling argued.
Sounds nice, except the CBO said its more pessimistic workforce view had been shaped by recent studies, “in particular” those looking at “expansions or contractions in Medicaid eligibility for childless adults.” In general, the CBO explained, phasing out subsidies to buy health insurance when income rises “effectively raises people’s marginal tax rates . . . thus discouraging work.” …
Obamacare has been undermined by the very entity they had used to validate it.
As I said, they have no fig leaf left. But they still have plenty of chutzpah. Yay, stagnation! may well be their next rallying cry.