New CBO Report: Obamacare’s Job Destruction Worse Than First Predicted

One the most important fundamentals of economics is the lesson that incentives matter. That is, the institutional rewards and punishments for certain behavior will result in people altering their behavior in predictable ways. This lesson is captured in oft-repeated phrases like “when you tax an activity, you get less of that activity,” or – relevant to more recent debates – “when you pay people not to work you will see more people not working.”

This economic fundamental is further on display by a Congressional Budget Office report that suggests that the incentive structure established by Obamacare will results in millions of additional jobs lost. As the Wall Street Journal writes:

Now CBO—full of liberal-leaning economists—says the economy will lose the equivalent of two million full-time workers by 2017 and 2.5 million over the next decade, a threefold increase over its prior estimate.

CBO’s analysis is rooted in ObamaCare’s complex design that includes new subsidies, taxes and mandates. For low-wage, lower-skilled or discouraged workers in particular, ObamaCare offers incentives that can force them to trade jobs for entitlement benefits.

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CBO’s conclusion is that ObamaCare will encourage people to supply less labor by deciding not to take a job or by working fewer hours. The law’s insurance subsidies are gradually taken away as income rises, “creating an implicit tax on additional earnings,” the CBO observes. These effective marginal tax rates reduce the rewards for work—whether it be overtime, accepting a promotion, or training in the hope of higher future earnings.

Because of the structure of Obamacare’s insurance premium subsidies, it was entirely predictable that people would respond by taking fewer hours or opting not to take certain jobs for fear of losing the benefits (as was employers’ response to cut back jobs and hours due to the employer mandate penalty).

Rather than helping those in poverty or low-income households, Obamacare serves to make the poverty trap an even more potent force keeping poor people poor.

In this regard, Obamacare is working as planned: pull more people into government dependency in order to strengthen political power.