ObamaCare: A Plan to keep Poor people Poor

Most of the media and political class has been in favor of ObamaCare since the first draft of the legislation made the rounds in Congress. Considering the detrimental impact and the perverse incentives that these bills create, it difficult to believe that all of these so called “informed” people have dug into these bills (both House and Senate versions) to ponder their impact. Let’s take a quick look at some of the more salient points in regard to ObamaCare.

What do these Bills do?
– Each bill contains an individual mandate that requires all Americans to purchase health insurance.
– Each bill forces low and middle income workers to pay an increasing amount of their income toward health premiums as their incomes increase.
– Each bill creates a number of health insurance subsidies that phase out as income rises.

These three requirements, taken together create an increased effective marginal tax rate.

What is Effective Marginal Tax Rate(EMTR)?
Effective marginal tax rate is calculated as the combined effect of the mandates, taxes and the phased out governmental subsidies.

As we shall see, these items have a detrimental impact on workers incentive to earn additional income. There is substantial evidence that shows that a higher EMTR discourages workers from working harder to climb the economic ladder.

The Individual Mandate
While the people on Capital Hill and in the White House are loath to classify this as a tax, that’s what it is. The federal government will exercise its power and order people to purchase health insurance. If people choose not to purchase it, they will be hit with a fine. However you want to spin it, its a tax.

The Taxes & Subsidies
These bills will require low and middle income workers to pay a percentage of their income toward this mandatory health insurance. The percentage paid will rise as the workers income rises thus consuming a larger share of each additional dollar earned. This tax also rises with the average growth rate of health insurance premiums completely independent of income. Therefore, a workers yearly income could go down while the cost of the insurance goes UP.

That’s bad enough, but here’s another point: the subsidies provided to these low and middle income workers are phased out as their income rises. Therefore, in some instances, workers will be better off NOT earning additional income. If they do, they could lose more in subsidies than is earned in income thus lowering their overall income. In other words, they would have an EMTR of GREATER than 100%.

How did the Democrats get the “compassionate” label again?

All of this combines to create an environment that is hostile to low and middle income folks. These rules essentially make it more difficult for these folks to get ahead. The more they earn, the more they pay in health insurance premiums and lose in subsidies. Every step forward is succeeded by 2 steps back.

It’s difficult to believe that any American would stack the deck so badly against their fellow citizens. That, dear reader, is exactly what this Congress and Barack Hussein Obama have done with this health care legislation.

crossposted to The Ritz Report