Comments on Casey Mulligan’s “Average Marginal Labor Income Tax
Rates Under the ACA”Don Taylor
Associate Professor of Public Policy at Duke Universitywww.donaldhtaylorjr.com
January 18, 2014
Question?In 20 years, how do you want your children
(grandchildren) to obtain health insurance?
ACA 50,000 foot versionLittle c conservative: keep what we have in
ESICreate market for premium supported private
insurance + Medicaid expansionMacro finance: tax increases & Medicare cutsKitchen sink cost/system demosCaddy tax: limit of tax preference of ESI
Mulligan PaperEstimates marginal labor income tax rates
from ACADocuments implicit + explicit
Painstaking effort, carefully donePuts an estimate to intuitionUseful: break down provisions into
“programs”Uses median wage earner to evaluate
impactsStatutory Index $204/month, or 4.8% points
of employee compensationBig effect
More on effectsEmployer shared responsibility payment only
third largest impact (delayed)Sliding scale subsidies for those offered ESI
at work & those not both largerAnalysis identifies incentives to work as well
as disincentives
I am unclear on Table 2Table 2 key. Overall estimates focus on short
run decisionsTable 2 provides an adjustment of
overstatement of tax increase due to longer time frame
Table 1 uses 3 month overstate adjustment=-0.2
12 months overstate=-1.6; 6 month =-0.6
Big question: are there really behavioral opportunities to take advantage of this math?
Table 3 MemorableMore taxable income net insurance + work
expenses for part time than full timeMath is correctSeems an atypical example
Part time $26/hour in wagesFull time $26/hour in employment cost
(insurance premiums excluded, employee premiums pre tax)
Sensitivity? Run it at $16 and $36/hour?
Slight quarrelTable 1 does not include a loss of the tax
subsidy when leaving ESI to move to an exchange plan
Casey notes the ACA doesn’t take away the subsidy; the tax code has provided it for 60+ years, it is simply triggered when you decide to leave ESI for ACA
Perhaps put what the magnitude of the term would be in the footnote
What I would like to see in paperShow how sensitive overall findings are to
using median wages (10th, 25th, 50th, 75th, 90th )
Estimate Medicaid expand States v not separately
Evaluate other financing approaches for ACAVAT/Sales taxWalk down ESI tax exclusion 75th, 50th, 25th, etc
& end employer penaltyThis could be another paper (very interesting
one)
What I hope is happening longitudinallyAre the data being collected to test for the
predictions that flow from this analysis? (and other analyses)
State Level ImpactsI think an incentive to work term is missing for
States that have not expanded Medicaid & who have 0% eligibility for childless adults (you are in one now)
Childless 46 year old Adult in NC: if you make $11,489 you get nothing; if you make $11,490 you can buy ACA plan in Durham county for: $0/month bronze; $11.37/month silver + cost share subsidies
Paper has disincentive factor from Medicaid expansion which I agree with; needs an incentive term in addition to the one derived from table 2 to account for “low cliff” in some states
But what about Massachusetts?Very interesting analysisMass the increase in labor income tax rate
$16/month or 0.3% points US $204/month or 4.8% points
Key talking point been ESI went up in Mass, didn’t tank labor market
Difference between doing in rich State v the South?
Two key ifs in the discussionCombined employment taxes roughly what
they were in 2013 even with ACA ifEmergency Unemployment Compensation not
extendedEmployer penalty delayed
The first is likely, the second is a near certainty (forever)If so, shift from $ to health insurance (hope someone studying this)
How much subsidy should you get?
Need a deal to transitionWe need a political deal that could allow
Casey’s paper to stimulate a conversation about what might be a better way to finance health reform
Left, Right and Center can sketch distant approaches, but transitioning there is very hard
Both sides need a dealEasier to poke holes in any plan than it is to
do better
Three suggestions:Replace individual mandate w/ Paul Ryan
auto-enrollFor exchange purchases above subsidy, make
some/all premium deductible Replace caddy tax with capping of tax
exclusion ESI
My answerI don’t want my kids to get insurance from a job
Decouple employment from health insuranceMake all subsidies explicit
At Duke, there is some one with a good idea who won’t try it because they need health insurance
But need stable source of coverageExchange approach ~ inevitable. Details flexible
Paul Starr’s “Policy Trap”165 Million with employer sponsored
insurance50 Million with Medicare; 65 Million +
Medicaid15 Million individual purchase
ACA makes these buy ~ employer benefit level policies; those above 400% poverty must pay full price.
Pissed and noisyIssues Casey demonstrates
Republicans & canceled health plansRamesh Ponnuru in National Review on line
10/30/13
“Some Republican health-care plans would run up against this same obstacle, because they, too disrupt the existing health-insurance arrangements.”
Understatement alert. 165 Million with tax free employer contributions via ESI have lots too lose (aggregate $272 Billion this year)
The hardest part of any reform
Is the transitional periodLeft, Right and Center can sketch distant
approaches, but transitioning there is very hard
How ACA Impacts Small BusinessEmployer penalty (delayed)
96% of firms < 50 employers so does not applyBut, only 28% of workers in such firmsFT v PT issues (notch is inherent)
Small Biz Employer Tax CreditSmall Biz Exchange (SHOP Exchange)
Small Biz Tax CreditComplexEmployers <25 employees, w/ avg wage
<50K2014 Max subsidy <10 employees, avg wage
<25k50% employer cost 2 yrs (‘10-’13 35%)
Walk down rules based on # employees & avg wages
Credit against income tax; ineligible if do not owe tax
Most who were eligible didn’t use the credits
Why was small biz uptake low?4.4 Million taxpayers told potentially eligible;
only 278,000 used credits in 2010 (transitional program)
Avg tax credit claimed $2,748Problems
Incentive too small (83% eligible did not offer HI)
Many employees offered declinedProcess to claim tax credit too complex
Small biz (SHOP) ExchangeVoluntaryIn N.C. only BCBS selling in ‘14 SHOP
Exchangesmall biz can shop there
In State run exchange, State can define small biz up to 100 employees (N.C. not running exchange); goes to 100 for SHOP purposes in 2016
General: in 2017 States have broader flexibility on who can buy in exchanges of all types
All sorts of revision imaginableExpand the small biz tax credit & make it
simplerAlter the employee size cutoffs
FTE, payroll, type of employee etc
Short term: lack of a Republican alternative makes a deal impossible
Long term: how do you want your children to get insurance in 20 years?
My answerI don’t want my kids to get insurance from a
job
Decouple employment from health insuranceMake all subsidies explicit
BUT need stable source firstCadillac tax: replace it with a more
straightforward cap on the tax exclusion of employer provided insuranceMake clear to whom the subsidy flows