Reports from a local news broadcast featured interviews with some disappointed liberals who now realize that their insurance is much higher, deductibles are higher, and that they make too much to qualify for subsidies. In the case of a particular family that owned a business, they decided to decrease their salary in order to qualify for subsidies, realizing that they will get more in subsidies than they lost in decreased income. How ingenious.
This is just one case of the unseen cost of Obamacare in the moral fabric of our country. In the previous example, the reduction in salary will result in decreased tax revenue, while qualifying for the subsidies amounts now to a credit from other taxpayers. In other words, a double whammy on the fiscal side of things, but a bigger hit to the once common sense economic truth that increased wages result in more money being brought home. This will also result in wage stagnation and decreased wages.
“I can’t afford a pay raise.”
“Can you please decrease my annual salary by $3000.”
“Thanks, but no thanks on the pay raise.”
In what society and economic system would you find a growing portion of the populace not wanting pay raises, and in some cases even asking for a paycut? Only in a growing welfare state where more money is being transferred from the higher earners to the lower earners to equalize society. This, also, is a double whammy.
Back to my original point that was illustrated in the hypothetical, but real, quotations. When the welfare (general reference to all redistribution programs, including but not limited to Obamacare) offered is worth more than the difference in a net increase in wages that would put you over the qualifying limits, then pay raises actually hurt the bottom line. When one realizes that they make slightly more than the welfare line, and can actually benefit more from the welfare than the salary cut, folks will actually ask for a pay cut. Whether it’s Obamacare or Medicaid expansion, the so-called safety net has been enlarged to benefit the lower middle class. Such increases in the welfare threshold, therefore, actually cease to operate as a true safety net and threatens the balance of society built on the free market, hard work, and the incentives of pay raises attached to said hard work.
This stagnation in wages, along with pay cuts, actually increases the burden on the welfare programs. Fewer taxes being paid in, more money going out. Certainly, people on the lower end of the spectrum can game the system as explained, but enlarging the pool will incentivize even more people than before and prove to be unsustainable.
The other unseen is how this hurts the earners in the top half of the income bracket. As more and more people are subsidized in the lower half, the burden will lay with the producers through increased taxes. The progressive nature of taxes actually increases the percentage paid indexed to increased wages. This will disincentivize increased revenue when graduation to a higher tax bracket actually proves to be of little benefit to the producer. The more you earn, the more you pay (as a percentage). Ronald Reagan only filmed a couple movies a year, because pretty much all work beyond that went to the government with a higher graduated tax rate. Why work harder for diminishing returns?
Obamacare, and welfare in general, that exceed the original intent of being a safety net for the bottom rung, and is now subsidizing more and more rungs up the ladder, will inevitably tip the balance and lead us closer to the point of no return on how work is incentivized by prospects of higher income. Only in a growing welfare state will people on the bottom, people on the top, and now, people in the middle, be disincentivized from increased production and pay.
What are some solutions? Get rid of welfare. Reduce the welfare to people who are truly on the bottom rung. Index welfare to wages in a way that doesn’t have vast gaps between income and payouts, but is proportionate to salary with an equation that has decreasing payouts with each dollar earned, diminishing to zero. Such an index must not punish an increase in wages. The bottom line, if someone gets a payraise, it should never hurt their net income. Even though the full dollar won’t net a full dollar, because it will decrease subsidies in some amount that must be below a dollar, it will at least us in the right direction of recovering a foundational premise that hard work and more work will never be discouraged by the State’s interference in the market to the degree where less work is ever commended to better one’s situation.
© 2013, Rick Hogaboam. All rights reserved.