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The Effect of the Obamacare Tax

Posted by Larry Doyle on February 5, 2014 12:46 PM |

The release of the Congressional Budget Office report yesterday on the effects of Obamacare has not surprisingly set off a firestorm in respective political camps and among their media friends.

Let’s dispense with the heavy clanging noise connected to this topic that is resonating throughout our land and take a more measured approach in assessing the impact of the tax connected to Obamacare.

First and foremost, although many do not like associating the term “tax” in discussing Obamacare, let’s not forget that none other than Chief Justice Roberts told us that is exactly what it is in handing down his ruling upholding Obamacare.

Without being overly simplistic, whenever taxes are imposed behaviors change. To think otherwise is naive. 

Those upon whom taxes are imposed, be they individuals or companies, will typically look to offset the effect of the increased cost by compensating elsewhere. Individuals will typically decrease their spending on discretionary items. Companies will typically look to decrease their costs in any number of areas but the most likely being the costs connected to personnel. Those costs would be in terms of lessened hours worked, lessened overall headcount, or a combination of the two. This typically will lead to a slower overall rate of growth and output for a company and in turn the economy as a whole.

For those who are the beneficiaries of a tax imposed elsewhere, the question begs whether they will utilize the benefits they receive to augment their current level of productivity so as to offset the decline in productivity elsewhere in the economy. Not that this reality could not play out but the immediate questions beg if, where, when, and why it has played out in this fashion elsewhere.

I would maintain that the answers to these questions are not hard and fast one way or the other as either of our political camps may care to promote. This said, I personally believe there is more evidence supporting the case that increased taxes have a negative effect on the overall economy that is not meaningfully offset by an increased level of productivity elsewhere. What do I expect we will see, though, when both taxes and benefits are increased as is and will happen with Obamacare?

I certainly expect that we will see people on both ends of the spectrum trying to beat the system. That is, companies will see where and how they might be able to get around the increased taxes and regulations. This means more business likely taking place under the table or in a black market.  On the other side of the coin, I would also expect that we will see more individuals trying to figure out how they can receive benefits that otherwise should not accrue to them.

Who is left in the middle to get increasingly squeezed? Those purchasing insurance through the individual marketplace with no place to hide.

Those with personal insights please share them.

Navigate accordingly.

Larry Doyle

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The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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