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Comments on Casey Mulligan’s “Average Marginal Labor Income Tax Rates Under the ACA”. Don Taylor Associate Professor of Public Policy at Duke University www.donaldhtaylorjr.com January 18, 2014. Question?. In 20 years, how do you want your children (grandchildren) to obtain health insurance?.

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comments on casey mulligan s average marginal labor income tax rates under the aca

Comments on Casey Mulligan’s “Average Marginal Labor Income Tax Rates Under the ACA”

Don Taylor

Associate Professor of Public Policy at Duke University

www.donaldhtaylorjr.com

January 18, 2014

question
Question?
  • In 20 years, how do you want your children (grandchildren) to obtain health insurance?
aca 50 000 foot version
ACA 50,000 foot version
  • Little c conservative: keep what we have in ESI
  • Create market for premium supported private insurance + Medicaid expansion
  • Macro finance: tax increases & Medicare cuts
  • Kitchen sink cost/system demos
  • Caddy tax: limit of tax preference of ESI
mulligan paper
Mulligan Paper
  • Estimates marginal labor income tax rates from ACA
    • Documents implicit + explicit
  • Painstaking effort, carefully done
  • Puts an estimate to intuition
  • Useful: break down provisions into “programs”
  • Uses median wage earner to evaluate impacts
  • Statutory Index $204/month, or 4.8% points of employee compensation
  • Big effect
more on effects
More on effects
  • Employer shared responsibility payment only third largest impact (delayed)
  • Sliding scale subsidies for those offered ESI at work & those not both larger
  • Analysis identifies incentives to work as well as disincentives
i am unclear on table 2
I am unclear on Table 2
  • Table 2 key. Overall estimates focus on short run decisions
  • Table 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 memorable
Table 3 Memorable
  • More taxable income net insurance + work expenses for part time than full time
  • Math is correct
  • Seems an atypical example
    • Part time $26/hour in wages
    • Full time $26/hour in employment cost (insurance premiums excluded, employee premiums pre tax)
    • Sensitivity? Run it at $16 and $36/hour?
slight quarrel
Slight quarrel
  • Table 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 paper
What I would like to see in paper
  • Show 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 ACA
    • VAT/Sales tax
    • Walk down ESI tax exclusion 75th, 50th, 25th, etc & end employer penalty
    • This could be another paper (very interesting one)
what i hope is happening longitudinally
What I hope is happening longitudinally
  • Are the data being collected to test for the predictions that flow from this analysis? (and other analyses)
state level impacts
State Level Impacts
  • I 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
But what about Massachusetts?
  • Very interesting analysis
  • Mass 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 discussion
Two key ifs in the discussion
  • Combined employment taxes roughly what they were in 2013 even with ACA if
    • Emergency Unemployment Compensation not extended
    • Employer penalty delayed

The first is likely, the second is a near certainty (forever)

If so, shift from $ to health insurance (hope someone studying this)

need a deal to transition
Need a deal to transition
  • We need a political deal that could allow Casey’s paper to stimulate a conversation about what might be abetter way to finance health reform
  • Left, Right and Center can sketch distant approaches, but transitioning there is very hard
both sides need a deal
Both sides need a deal
  • Easier to poke holes in any plan than it is to do better

Three suggestions:

  • Replace individual mandate w/ Paul Ryan auto-enroll
  • For exchange purchases above subsidy, make some/all premium deductible
  • Replace caddy tax with capping of tax exclusion ESI
my answer
My answer

I don’t want my kids to get insurance from a job

  • Decouple employment from health insurance
    • Make 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 coverage
  • Exchange approach ~ inevitable. Details flexible
paul starr s policy trap
Paul Starr’s “Policy Trap”
  • 165 Million with employer sponsored insurance
  • 50 Million with Medicare; 65 Million + Medicaid
  • 15 Million individual purchase
    • ACA makes these buy ~ employer benefit level policies; those above 400% poverty must pay full price.
    • Pissed and noisy
    • Issues Casey demonstrates
republicans canceled health plans
Republicans & canceled health plans
  • RameshPonnuru 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
The hardest part of any reform
  • Is the transitional period
  • Left, Right and Center can sketch distant approaches, but transitioning there is very hard
how aca impacts small business
How ACA Impacts Small Business
  • Employer penalty (delayed)
    • 96% of firms < 50 employers so does not apply
    • But, only 28% of workers in such firms
    • FT v PT issues (notch is inherent)
  • Small Biz Employer Tax Credit
  • Small Biz Exchange (SHOP Exchange)
small biz tax credit
Small Biz Tax Credit
  • Complex
  • Employers <25 employees, w/ avg wage <50K
  • 2014 Max subsidy <10 employees, avg wage <25k
    • 50% 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
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 $2,748
  • Problems
    • Incentive too small (83% eligible did not offer HI)
    • Many employees offered declined
    • Process to claim tax credit too complex
small biz shop exchange
Small biz (SHOP) Exchange
  • Voluntary
  • In N.C. only BCBS selling in ‘14 SHOP Exchange
    • small 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 imaginable
All sorts of revision imaginable
  • Expand the small biz tax credit & make it simpler
  • Alter 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 answer1
My answer

I don’t want my kids to get insurance from a job

  • Decouple employment from health insurance
    • Make all subsidies explicit
  • BUT need stable source first
  • Cadillac tax: replace it with a more straightforward cap on the tax exclusion of employer provided insurance
    • Make clear to whom the subsidy flows