Tax subsidies and incentives to work

From the NYT “Economix” Blog” by Uwe Reinhardt:

Last week a brouhaha erupted over a passage in Appendix C of a Congressional Budget Office report, Budget and Economic Outlook 2014-24.

In that appendix, “Labor Market Effects of the Affordable Care Act: Updated Estimates,” the agency reported its estimate that the Affordable Care Act “will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor – given the new taxes and other incentives they will face and the financial benefits some will receive.”

The agency estimated this reduction in hours worked as the “full-time-equivalent workers of about 2 million in 2017, rising to about 2.5 million in 2024.” The agency hastens to point out that this number does not represent jobs no longer offered by employers but, for the most part, the decision of employees not to work.

Opponents of the Affordable Care Act and many news reports quickly seized upon this estimate, characterizing it as “dropping a bomb” or having “nuked” Obamacare. Joseph Rago of The Wall Street Journal attributed this interpretation of the data to an exposé by my fellow Economix blogger Casey B. Mulligan.

Commentators supporting the Affordable Care Act pointed out that the pro-growth effect of the law’s lower health costs would swamp any antigrowth effects from a lower labor supply and that ifsome Americans decided to work less, given the incentives they face, they would yield available jobs to others willing to work but unable to find a job, which on balance would be a good thing.

Read the entire article here.