Obamacare Redistribution and the Disincentive to Work

MishTalk

Reader WC Varones emailed an article he wrote on Obamacare and the Disincentive to Work.

by Mish

At the heart of the matter is a redistribution scheme that punishes the middle class the most, and the wealthy the least, for the benefit of the poor.

As awful as Obamacare has been at its purported goal of making health care affordable, it has been unquestionably successful at one of Obama’s other primary goals: the redistribution of wealth. Unfortunately, the poor design of the redistribution function is one of the reasons Obamacare is failing.
As the Economist points out in “Healthy Dose of Redistribution“, Obamacare imposes new taxes and costs on the middle class to fund subsidies for low-income earners. Low-income people get Obamacare for almost free, while middle class families are required to pay full freight for the most expensive government health care plan in the world by far.

Varones took data from an Obamacare Subsidy Calculator and crunched the numbers for a married couple in their 50’s in San Diego.

He posted the Subsidy Data along with a chart that shows a huge drop-off in after tax income if you make too much money.

I copied his spreadsheet, and prettied up the chart a bit with data points and axis labels. This is what it looks like.

The above chart is for a couple in San Diego. It reflects the price of a typical “silver plan” and Obamacre subsidies at various gross income levels.

Thanks to Obamacare, it is better for the average childless couple in California to make $63,000 than $72,000. Things are really horrendous if someone makes $64,000.

Taking Obamacare, federal, and state taxes into consideration, a couple that makes $63,000 annually takes home $48,770. A couple that makes $64,000 takes home $42,360!

Varones calculates the marginal tax rate of that extra $1,000 in income to be 741%.

The income level at which the cliff happens varies by family size and place where one lives. The cliff happens at $98,000 for a family of four in Omaha. Everyone has a cliff at some income level.

Varones finishes appropriately “The cliff is likely to get even bigger with the Huge Obamacare Premium Increases expected in 2017. This will not end well.”

Thanks to Obamacare, it is frequently better for a middle class family to get no raise than even a decent sized raise.

The wage point varies, but many will say “Dear employer, please don’t pay me more. It will cost me a lot of money”.

Mike “Mish” Shedlock

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