September 25, 2013

Obamacare’s ‘Cool Calculator,’ Part 1: Work Disincentives Like We’ve Never Seen Before

Filed under: Economy,Health Care,Taxes & Government — Tom @ 3:05 pm

OcareKFFembedLinkFor many Americans, an extra dollar in income means thousands more in Obamacare payments. It’s a recipe for permanent malaise.


This column went up at PJ Media and was teased here at BizzyBlog on Monday.


In a September 13 email, Erin Hannigan of Organizing for Action’s “Truth Team” excitedly told readers about how under the Patient Protection and Affordable Care Act, aka “Obamacare” (the term she used), “millions of Americans will be eligible for financial assistance, or tax credits.”

“Tax credits”?

Since June 2012, thanks to Chief Justice John Roberts and his Supreme Court majority, the penalties the law will impose on individuals and families who do not purchase health insurance beginning next year have legally been considered “taxes.” So it’s only “logical” in the same convoluted sense that what most of us have been calling “premium subsidies” in Obamacare should really be considered “tax credits.” Consistently extending the Beltway “logic,” the premiums themselves should also be considered “taxes.”

Hannigan’s email proudly points readers to a “cool calculator from the nonpartisan Kaiser Family Foundation that shows how the tax credits work,” and encourages everyone to “share it on Facebook or Twitter.”

Obamacare opponents should eagerly take Hannigan up on her suggestions, embed the calculator on their own web sites, and encourage everyone who opposes the law’s implementation and supports its defunding to take it for a test drive. They should also demand that the law’s political defenders in Washington, as well as those who claim to oppose it but can’t find the courage to support its defunding, explain how they can, on top of the seeming inevitability that Obamacare will be incompetently implemented if allowed to go forward, permit the perverse results the calculator demonstrates to take effect.

You see, Kaiser’s “cool calculator” makes the exact points Robert Rector at the Heritage Foundation and yours truly have been arguing since early 2010, namely that the Affordable Care Act will deeply discourage work and virtually any other attempt at financial improvement. It will also throw new obstacles in the way of couples wishing to get and stay married, even to the point of encouraging marital breakups of families with children. I will cover the financial effects in the remainder of this column, and address the impacts on marriage in Part 2.

Millions of Americans who don’t have employer-provided or other group health insurance arrangements and who don’t purchase private non-Obamacare individual or family coverage before the end of 2013 — something most people don’t realize remains an alternative for just a few more months — will be legally required to enroll in the Affordable Care Act’s health insurance exchanges or face the penalties now characterized as “taxes.” The number of Americans forced to resort to the exchanges has, in my opinion, been artificially and deliberately juiced by the Obama administration’s arguably illegal decision to delay the imposition of the “employer mandate” until 2015. Many individuals and families who would have qualified for employer-provided coverage if the employer mandate had been enforced beginning in January 2014 will now have to go to the exchanges or face the penalties.

Those who enroll in Obamacare’s exchanges will be subjected to a brand-new system of income-based federal taxation (again, their word) over and above Uncle Sam’s existing income and FICA (Social Security and Medicare) tax regimes, complete with marginal rates for most enrollees ranging from 9.5 percent to 18 percent, along with myriad “cliffs” where premiums — er, taxes — skyrocket when a person or couple earns just one dollar of additional income.

Let’s look at a rate table I have prepared for a single person with no children under Obamacare’s “Silver” Plan at selected ages (a more complete set of tables is here):


The table tells us that in states which have chosen not to expand Medicaid, enrollment in that program will be mandatory for single people with annual incomes under $11,490, that group’s poverty line (some states have chosen to expand Medicaid access to everyone under 138% of the poverty level).

Income right at the poverty line triggers exchange enrollment and an immediate $230 premium. The premiums increase by $1 for each $50 of additional annual earnings up to $15,281. At the next dollar, the premium jumps from $306 (2 percent of $15,281) to $458 — a $152 tax on $1 of earnings. (Believe me, we’re just warming up with examples of “cliff” taxation.)

The next level is also intriguing, given that Obamacare is supposedly a masterpiece of “progressive” thought. The average marginal rate on earnings between $15,282 and $34,369 is 14.7%. As the footnote above explains (fully illustrated here), “marginal rates vary between 11% and 18% (rounded), and gradually increase as income increases.” But from $34,370 to $45,960 in income, as seen above, the marginal rate drops to 9.5 percent.

Thus, the “tax credits” OFA’s Hannigan thinks are “cool” are regressive, taking a higher percentage of additional earnings from lower-income working class people and a lower percentage from those with mid-range earnings.

Then look at what happens once a single person who is 50 or older hits annual earnings of $45,961.  At that point, what remains of those wonderful “tax credits” goes up in smoke. (Speaking of smoke, you won’t believe how steep Obamacare’s tobacco surcharges are. But I digress.)

For a 50 year-old single person, dollar number 45,961 causes their annual exchange premium (i.e., “tax”) to increase from $4,366 to $5,390. That’s because what Kaiser calls Obamacare’s “government tax credit subsidy” (they’re also having a hard time with the language) goes from $1,024 to zero. For a 64 year-old, a “tax credit subsidy” of $4,688 gets zeroed out. The marginal tax rate on dollar number 45,961 for that person is a whopping 468,800%.

Now let’s look at the Silver Plan situation for a married couple with no children:


The song is mostly the same, with only the brackets changing, with one big exception: The subsidy losses at the cutoff threshold, in this case annual earnings of $62,041, affect every age group, and are far more brutal. Those looking for a Guinness Book of Records entry for the highest marginal tax rate ever imposed on a significant number of people will probably have to search far and wide to beat the 1,221,400% rate ($12,214 on a $1 income increase) a 64 year-old couple faces on dollar number 62,041 in annual income.

At most earnings levels below the two “cliffs” identified above ($45,961 for singles and $62,041 for married couples), the combined effect of the federal income tax, Obamacare’s “tax credit” reductions, and FICA will cause everyday working Americans to incur marginal federal tax rates ranging from 32 percent to 50 percent: 15 percent to 25 percent income, 9.5 percent to 18 percent Obamacare, and 7.65 percent FICA. Even before considering state and local income taxes, those marginal tax rates are among the highest in the world, and are restricted in most countries to far higher income levels. Many will conclude that earning extra money isn’t worth it — or will strive mightily to find ways to earn income under the table. This is not the recipe for growing an economy which already more resembles the awful 1930s in key statistical aspects than it does any other seen since World War II.

Even if they somehow stay motivated while the government is taking one-third to one-half of each additional dollar they earn, what single person in their 50s or 60s who understands all of this is going to move to a new position or accept a promotion which increases their salary from $46,000 to $50,000? What sane married couple in their 50s or 60s will want to increase their family’s income from $60,000 to $70,000, when doing so means either taking home almost nothing extra or losing money in the bargain?

Let’s look at a chart of a 60 year-old married couple’s Silver Plan premiums at different income levels:


Is there anything a couple with income in the mid-$60K range who will be socked by the $10,000-plus “cliff” illustrated above can do to get around that awful situation?

Well, there is, but, as will be seen in Part 2, the “best” alternative is something most people would not consider “cool.”



  1. Just a heads up – we’ve done a few different Obamacare calculators, the main one we’ve developed compares what you’ll pay in premiums (even after subsidies if you’re eligible) with what you would otherwise have to pay in taxes, which we’ve also specifically applied to the Trader Joe’s story in later posts. Those who expect to have low health care expenses will have huge incentives to drop any health insurance coverage until they might actually need to use it.

    If you look around the site, we’ve also have a version of that tool which you can use to see if you’ll be penalized for making too much money and becoming ineligible for Obamacare subsidies, where making just 1 penny too much over certain income levels can cost you hundreds, if not thousands of dollars.

    Comment by Ironman — September 25, 2013 @ 3:38 pm

  2. [...] covered two of them in my most recent column. The first is that when combined with Uncle Sam’s current income and payroll tax regimes, the [...]

    Pingback by BizzyBlog — September 28, 2013 @ 11:09 am

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