February 10, 2014
Many people who have retirement funds in the stock market are able to retire this year as a result of the big run-up in the stock market last year. According to Washington Post columnist Marc Thiessen this means that these people will see a big cut in their pay. After all, retired people won’t be collecting paychecks.
I’m not making this up, that is the argument in Marc Thiessen’s latest column, cleverly titled, “Obamacare’s $70 billion pay cut.” Thiessen’s basis for claiming that the Affordable Care Act will lead to a $70 billion cut in pay is the Congressional Budget Office’s assessment that it will lead to a reduction in aggregate compensation of 1.0 percent between 2017-2024.
He tells readers;
“How much does that come to? Since wages and salaries were about $6.85 trillion in 2012 and are expected to exceed $7 trillion in 2013 and 2014, a 1 percent reduction in compensation is going to cost American workers at least $70 billion a year in lost wages.”
“It gets worse. Most of that $70 billion in lost wages will come from the paychecks of working-class Americans — those who can afford it least. That’s because Obamacare is a tax on work that will affect lower- and middle-income workers who depend on government subsidies for health coverage.”
Sounds really bad, right?
Well first let’s go back to the CBO report cited by Thiessen.
“According to CBO’s more detailed analysis, the 1 percent reduction in aggregate compensation that will occur as a result of the ACA corresponds to a reduction of about 1.5 percent to 2.0 percent in hours worked. (p 127)”
We checked with Mr. Arithmetic and he pointed out that if hours fall by 1.5 to 2.0 percent, but compensation only falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. In other words, CBO is telling us that for each hour worked, people will be seeing higher, not lower wages. That is the opposite of a pay cut.
However because people may now be able to afford health insurance either without working or by working fewer hours than they had previously, many people will choose to work less. That is worth repeating since it seems many folks are confused. Because people may be able to afford health insurance either without working or perhaps by working less than they had previously, many people will choose to work less.
Yes, just like people will opt to retire because they have more money in their retirement accounts, some people will opt to work less because Obamacare has made it easier to afford health care insurance. This is a voluntary decision that CBO is calculating people will make.
Now Mr. Thiessen is apparently convinced that the decision to work less will be the wrong decision for these people:
“most of that $70 billion in lost wages will come from the paychecks of working-class Americans — those who can afford it least”
but apparently the working-class Americans making the decision believe otherwise. Obviously the answer here is for Mr. Thiessen to go around to all the people who quit their jobs or cut back their hours because of Obamacare and explain to them why they have made a bad choice. Maybe he will change some minds and get people to work harder, but on its face, it seems likely that these working class people would be better positioned to judge how much they need to work than Mr. Thiessen.
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