Obamacare will discourage work

[quote]THE Affordable Care Act, better known as Obamacare, was supposed to transform American health insurance. Critics have long feared that it would do much more. Republicans have cast Obamacare as a job-killing, economy-crushing villain. On February 4th they appeared to get more ammunition from the Congressional Budget Office (CBO), Capitol Hill’s nonpartisan number-cruncher. The CBO, as part of its projection of economic growth over the next decade, estimates that Obamacare will lower full-time employment by 2.3m in 2021, compared with what might have been without reform, and by 2.5m in 2025. The main reason is not that firms are already slashing jobs to avoid the burden the law imposes, as Republicans have complained, but that Americans will choose to work less. The insight that Obamacare would lower the supply of labour is not new, but the magnitude of the CBO’s estimate is—the 2.3m drop in 2021 is nearly three times larger than the CBO’s earlier projection. Many factors account for the decline. Chief among them is the effect of subsidies for health insurance. To help Americans buy coverage on new health “exchanges”, Obamacare offers tax credits to those earning between 100% and 400% of the federal poverty line (about $11,500 to $46,000 for a single adult). Those tax credits are offered on a sliding scale, by income, so workers in effect pay a higher tax rate as their wages rise. This may dissuade them from trying to earn more. The White House, mining the report for nuggets of good news, argued that Obamacare liberates American workers. “At the beginning of this year, we noted that as part of this new day in health care, Americans would no longer be trapped in a job just to provide coverage for their families, and would have the opportunity to pursue their dreams,” the White House press secretary said in a statement. “This CBO report bears that out.” The supply-side effects are not all bad. Some Americans, no longer tied to their employer-provided insurance, may feel freer to take better jobs or start their own businesses. But this effect is unlikely to offset the ranks of people who choose to work less, or not at all. And although leisure is often agreeable, does America really want to encourage its citizens to put their feet up? The answer is almost certainly no. The country is already suffering from a sharp, troubling decline in labour-force participation, from 66% in 2007 to less than 63% now. This is partly due to retirement and partly to discouraged workers who have given up looking for a job. A shortage of workers is hardly an issue in the current, depressed economy. But some day it will be. The CBO expects participation to remain low, in part because of Obamacare. That is one main reason why it thinks America’s potential growth rate—the fastest it can grow with all available capital and labour—will slow to 2.1% over the next decade, compared with 2.2% in the past ten years and 3.3% over the past 60. There is no easy fix. Any means-tested programme may discourage work. For example, a new health proposal from three Republican senators also includes insurance subsidies for the poor, and so would also penalise those who earn more. Republicans are bound to use the CBO’s new estimates to bash Democrats in the mid-term elections. The more important question is how Democrats and Republicans should encourage more Americans who can work to do so. That might include raising the retirement age or expanding wage subsidies, whether through the Earned Income Tax Credit or a new wage subsidy championed by Marco Rubio, a conservative senator. Democrats and Republicans agree on little. But encouraging work—which gives individuals purpose in life and makes America richer—would seem a nonpartisan goal.[/quote] I saw this article as I was catching up with my Economist reading today. What do you reckon?