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