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> Employer contributions to health insurance currently average $10446 per employee and cover 71% of a household’s premium. These employer premiums are equivalen

> Employer contributions to health insurance currently average $10446 per employee and cover 71% of a household’s premium. These employer premiums are equivalent to a 12.29% tax on payroll exceeding the first $2 million... Therefore, any payroll tax less than 12.29%, our upper bound in the SHIFT interface, would result in savings for employers. This excerpt makes it glaringly obvious that no economists were consulted when writing this paper. Checking the list of authors confirms this. While they may be experts in public health, they're making one of the most elementary errors in Econ 101. That is they're assuming that a private expenditure (employer provided healthcare insurance) can be transformed into a public tax with no loss of efficiency. Deadweight loss[1] is the very first consideration in tax policy analysis. The reason it exists is very simple. Private actors have an incentive to minimize taxes in a way they do not with private expenditures. If you cut your company's health insurance plan, your employees will be unhappy and you'll either lose workers or have to raise compensation in other forms. If you restructure your company to avoid payroll taxes, your employees still enjoy the same access to single-payer healthcare. Many M4A advocates try to hand-wave away this problem. It's the equivalent of declaring "Then a miracle occurs". In this case the authors assume that the current employer-paid premiums are equivalent to replacing with a uniform payroll tax matching this aggregate. While 12.29% is the average across the entire economy, there's still wide variance between employers. Approximately half of employers are currently paying less than this. A significant proportion are paying substantially less than this. If the current system was replaced with a uniform payroll tax, the cost of labor for employers falling into this category will rise. In response that means those employers will lower their demand for labor, which results in either both economy-wide reductions in employment, wages and ultimately investment and GDP. Those results will mean that not only will the hypothetical new payroll tax not raise the revenue the authors are projecting, but current pre-existing taxes, like income and capital gains, will also see revenue shortfalls relative to baseline. [1] https://en.wikipedia.org/wiki/Deadweight_loss#Tax https://en.wikipedia.org/wiki/Deadweight_loss#Tax

Denvercoder9 7y ago
Why won't the rising cost of labor for the employers that currently pay less be offset by the falling cost of labor for the employers that currently pay more?
- dcolkitt 7y ago
  To a certain extent that would have an effect. However there are strong asymmetries between the two countervailing forces. First labor isn't perfectly fungible between sectors and firms. Moving workers will result in significant productivity lowering frictions. The clearest example of this is that the group most likely to have low insurance outlays relative to wages are high income workers. When the denominator's larger, the fraction's smaller For example a worker making $500,000 a year, even with a platinum plan $25,000 a year plan is only outlaying the equivalent of a 5% payroll tax. They'd get hit very hard under single-player payroll tax. In contrast a worker making $25,000 with a $6000 employer-insurance is paying 20%. Unfortunately the typical $500k/year high skilled job can't easily be replaced with twenty $25k/year workers. Second, you have to consider not just the reshuffling of demand between employers. You all also have to consider the tradeoffs potential workers make between paid labor and leisure. Universal single-payer will cause some workers to drop out of the labor force, scale back their hours worked, or take less stressful but lower productivity jobs. When everyone has access to the same healthcare regardless, the incentives between those options becomes less differentiated. People retiring early or spending more time as homemakers could be a good thing or a bad thing. But without a doubt it lowers economic output, and therefore the tax base. Finally raising payroll taxes creates incentives for workers to reclassify in a way that shields their income. One form is outright evasion. More jobs will pay cash under the table, more "employee leasing" schemes, or just simply not declaring income. The higher taxes are the more incentive there is to take the risk. But there's also many perfectly legal ways to dodge payroll taxes. Cash compensation can be shifted to exempt benefits like life insurance, employee discounts, and meals. Employee compensation can be reclassified as director fees. American Workers can relocated to foreign offices, where they're exempt from payroll taxes. Self-employed people can re-incorporate as an S-corp. This just scratches the surface. Once you double the effective payroll tax, expect a lot more effort and money invested in strategies to evade it. This not only means the proposed payroll tax rate captures less revenue than projected. It also means the pre-existing payroll tax now collects less revenue.
jandrese 7y ago
If an employer decides to cut 30% of their workforce for tax resasons, who is going to do the work? Do they make the rest of the staff work overtime to cover for the people they fired? Are they just going to produce 30% less product/service and let the market sort it out?
- asdfadsfgfdda 7y ago
  There are several things businesses can do: 1. Automate, invest in capital equipment to reduce labor. Instead of manually boxing a product, they can buy an automated packing machine. Or a restaurant can buy tablets to automate ordering. 2. Buy more "processed" input materials, effectively shifting labor to another country. Instead of buying raw lumber to create table legs, a furniture manufacturer would buy pre-made table legs from China. 3. Subcontract to an outside company. Under the ACA, only employers with 50 full time employees are required to provide coverage. So a larger company can effectively divide labor amongst several small companies. 4. Shift to lower labor products. Instead of a sit down restaurant, the restaurant can change to "fast casual", with no waiters.
omegaworks 7y ago
Health care costs are one of the largest year-over-year increasing costs employers have to pay. This eliminates that risk (which could rise to 6% next year) from the cost calculations every business currently has to make. From https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/employers-adjust-health-benefits-for-2019.aspx https://www.shrm.org/resourcesandtools/hr-topics/benefits/pa...: >"Health benefit costs are still rising at two times the rate of wage increases and three times general inflation, "making this [cost] trend unaffordable and unsustainable over the long term," Brian Marcotte, NBGH president and CEO, said at an Aug. 7 press conference in Washington, D.C. Medicare is one of the most efficient ways of delivering healthcare we have in this country. With overheads of 2-5% compared to the 10+% of the private industry[2] 2. https://www.americanprogress.org/issues/healthcare/reports/2019/04/08/468302/excess-administrative-costs-burden-u-s-health-care-system/ https://www.americanprogress.org/issues/healthcare/reports/2...
ianleeclark 7y ago
> In response that means those employers will lower their demand for labor, which results in either both economy-wide reductions in employment, wages and ultimately investment and GDP. Unless there's another equilibrium at the new demand which neither you nor I can state that there is or isn't.

Denvercoder9 7y ago

Why won't the rising cost of labor for the employers that currently pay less be offset by the falling cost of labor for the employers that currently pay more?

dcolkitt 7y ago
To a certain extent that would have an effect. However there are strong asymmetries between the two countervailing forces. First labor isn't perfectly fungible between sectors and firms. Moving workers will result in significant productivity lowering frictions. The clearest example of this is that the group most likely to have low insurance outlays relative to wages are high income workers. When the denominator's larger, the fraction's smaller For example a worker making $500,000 a year, even with a platinum plan $25,000 a year plan is only outlaying the equivalent of a 5% payroll tax. They'd get hit very hard under single-player payroll tax. In contrast a worker making $25,000 with a $6000 employer-insurance is paying 20%. Unfortunately the typical $500k/year high skilled job can't easily be replaced with twenty $25k/year workers. Second, you have to consider not just the reshuffling of demand between employers. You all also have to consider the tradeoffs potential workers make between paid labor and leisure. Universal single-payer will cause some workers to drop out of the labor force, scale back their hours worked, or take less stressful but lower productivity jobs. When everyone has access to the same healthcare regardless, the incentives between those options becomes less differentiated. People retiring early or spending more time as homemakers could be a good thing or a bad thing. But without a doubt it lowers economic output, and therefore the tax base. Finally raising payroll taxes creates incentives for workers to reclassify in a way that shields their income. One form is outright evasion. More jobs will pay cash under the table, more "employee leasing" schemes, or just simply not declaring income. The higher taxes are the more incentive there is to take the risk. But there's also many perfectly legal ways to dodge payroll taxes. Cash compensation can be shifted to exempt benefits like life insurance, employee discounts, and meals. Employee compensation can be reclassified as director fees. American Workers can relocated to foreign offices, where they're exempt from payroll taxes. Self-employed people can re-incorporate as an S-corp. This just scratches the surface. Once you double the effective payroll tax, expect a lot more effort and money invested in strategies to evade it. This not only means the proposed payroll tax rate captures less revenue than projected. It also means the pre-existing payroll tax now collects less revenue.

jandrese 7y ago

If an employer decides to cut 30% of their workforce for tax resasons, who is going to do the work? Do they make the rest of the staff work overtime to cover for the people they fired? Are they just going to produce 30% less product/service and let the market sort it out?

asdfadsfgfdda 7y ago
There are several things businesses can do: 1. Automate, invest in capital equipment to reduce labor. Instead of manually boxing a product, they can buy an automated packing machine. Or a restaurant can buy tablets to automate ordering. 2. Buy more "processed" input materials, effectively shifting labor to another country. Instead of buying raw lumber to create table legs, a furniture manufacturer would buy pre-made table legs from China. 3. Subcontract to an outside company. Under the ACA, only employers with 50 full time employees are required to provide coverage. So a larger company can effectively divide labor amongst several small companies. 4. Shift to lower labor products. Instead of a sit down restaurant, the restaurant can change to "fast casual", with no waiters.

omegaworks 7y ago

Health care costs are one of the largest year-over-year increasing costs employers have to pay. This eliminates that risk (which could rise to 6% next year) from the cost calculations every business currently has to make. From https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/employers-adjust-health-benefits-for-2019.aspx https://www.shrm.org/resourcesandtools/hr-topics/benefits/pa...: >"Health benefit costs are still rising at two times the rate of wage increases and three times general inflation, "making this [cost] trend unaffordable and unsustainable over the long term," Brian Marcotte, NBGH president and CEO, said at an Aug. 7 press conference in Washington, D.C. Medicare is one of the most efficient ways of delivering healthcare we have in this country. With overheads of 2-5% compared to the 10+% of the private industry[2] 2. https://www.americanprogress.org/issues/healthcare/reports/2019/04/08/468302/excess-administrative-costs-burden-u-s-health-care-system/ https://www.americanprogress.org/issues/healthcare/reports/2...

ianleeclark 7y ago

> In response that means those employers will lower their demand for labor, which results in either both economy-wide reductions in employment, wages and ultimately investment and GDP. Unless there's another equilibrium at the new demand which neither you nor I can state that there is or isn't.