The Full-Time Employment Tax

June 18, 2014

Thanks to the Affordable Care Act, millions of Americans have nothing to gain from working full-time, writes Casey Mulligan, professor at the University of Chicago.

The ACA contains two provisions that can completely eliminate the benefits of working full-time:

  • Employers that do not offer health insurance can save money, and escape penalties, by reducing their full-time employees to part-time work. Mulligan estimates that 3 million to 4 million workers will be hurt by this provision.
  • Twenty million full-time employees are ineligible for exchange subsidies because their firms offer health insurance. However, if they are reduced to part-time work (29 hours per week), they become eligible for subsidies and their employers are not penalized.
  • For 4 million of those employees, the subsidy gain is greater than the additional income earned from working full time.

Mulligan calls this the full-time employment tax (FTET). He notes that older workers are disproportionately going to be hit by the FTET, because they are more likely to have employer-sponsored insurance and are more expensive to insure.

Economists predict that employment rates will be very low, even potentially at zero, among people who recognize that they will gain no financial award from becoming a full-time employee.

Source: Casey B. Mulligan, "The ACA: Some Unpleasant Welfare Arithmetic," Cato Institute, June 2014.

 

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