by Mitch Kokai
Senior Political Analyst, John Locke Foundation
[T]aken together, the penalty on employers and the subsidies in the exchanges add up to a tax on full-time employment—a tax that you pay if you work full time but not if you work part time or don’t work at all. And the problem with that, of course, is that by taxing full-time work—which is the same as subsidizing part-time work and unemployment—you get less of the former and more of the latter two.
How does this full-time employment tax work with regard to the employer mandate? As I mentioned, the penalty applies only in the case of full-time employees and only to employers that don’t offer health coverage, and it applies only in those months during which those full-time employees are on the payroll. If an employee cuts back to part-time work, the employer no longer has to pay the penalty. The dollar amount of the penalty doesn’t depend on whether the employee is rich, poor, or middle class—if he works full time, the employer must either provide insurance or pay the penalty. And the penalty is indexed to health insurance costs, so every year those costs increase more than the economy and more than wages, the penalty will increase more than the economy and more than wages.
The current penalty is usually described as $2,000 per year per full-time employee. But it’s really more than that, because the penalty, unlike wages, is not deductible from business taxes. So in terms of a salary equivalent, the penalty is closer to $3,000 a head. Needless to say, this penalty reduces competition in the labor market: It discourages employers from competing for full-time employees—which, if you’re an employee, is a bad deal. Also there are a lot of employers who are not going to pay the penalty because they don’t meet the size threshold of 50 or more employees, and employees are going to suffer because these small employers won’t want to become large employers and therefore subject to the penalty.
Furthermore, this mandate or penalty—and by this time it should be clear that we can think of it as a tax on having a full-time employee—disproportionately harms low-skill workers. Think about it this way: How many hours does a worker have to work each week to produce the $3,000-per-year of value to justify keeping his job or being hired? For a minimum-wage worker, that comes to eight hours a week, all year round—one day of work a week for the government due to the ACA alone. Higher-skilled employees can obviously produce $3,000 worth of value in less time, so the penalty will have less of an impact on them.