More on implicit taxes and the counterfactual

Austin Frakt has a nice post discussing the ways in which Obamacare provides labor market tax relief, responding to Casey Mulligan’s latest post discussing the labor market taxes that it imposes. I have blogged several times about Casey’s work painstakingly documenting the impacts of the ACA on the labor market, and noting the tradeoffs at work in any mean’s tested program. I agree with Austin that Casey misses some of the impacts when someone leaves employment, such as foregoing the subsidy that comes from the tax exclusion of Employer Sponsored Health Insurance which is a subsidy no less than an exchange tax credit.

I commented on Casey’s work at the UNC Tax Symposium back in January (here are my slides as discussant UNCtaxconference.1.18.14) and also noted that he had left out a subsidy in his calculations that is foregone when someone leaves employer sponsored insurance to go onto the exchange.

ScreenHunter_01 Feb. 27 08.55

Austin has identified some other things that comprise the counterfactual to which the ACA is correctly compared. What I most would like to see from Casey’s framework is some simulations that go beyond what he finds objectionable in the ACA, toward what else we might do as a country regarding health reform given the consensus that the status quo prior to the ACA is unacceptable. Here is what I suggested at the conference in January:

ScreenHunter_02 Feb. 27 09.06

A demonstration of how different means of structuring and financing insurance subsidies impacts the labor market would be a very useful set of analyses, particularly if the same framework was applied to the nascent Burr-Coburn-Hatch PCARE proposal. While the exact magnitudes are unclear, the PCARE proposal will increase the marginal labor income tax rate for a variety of reasons, but most clearly because it provides tax credits between 100%-300% of poverty only. There is a private score of PCARE that doesn’t address Casey’s focus, but the numbers haven’t been updated since they backed off their original plan to end the tax exclusion of ESI (meaning what is called “miswording” by conservatives who were mad about what they viewed as taxing health plans was what was done in the private score, and that attribute of the score does almost all of the deficit reduction work in the score).

Casey’s framework is a useful one that highlights the impact of policy on marginal tax rates of labor income. The framework could usefully be added to macro level financing and insurance coverage impacts that are generally the focus of legislation scores. Lets shine the bright lights everywhere, and in a consistent fashion, and identify the alternatives so that we can do what you do when you engage in policy: make tradeoffs.

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

One Response to More on implicit taxes and the counterfactual

  1. Pingback: Burwell Nomination: Faint echoes of a deal post ’14? | freeforall

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