Obamacare Adds to Income Inequality

Statement

There is little doubt that the gap between the income of the poor and the rich has grown over the past few years. According to the Congressional Budget Office, the top one percent of earners saw their pre-tax income rise from 9 percent of all earnings to 15 percent between 1979 and 2010. Meanwhile, the poorest 20 percent of Americans saw their share of overall income fall from 6.2 percent to 5.1 over the same period of time.

Republicans and Democrats are at odds when it comes to solving the problem. I don't believe that raising taxes and spending more on government programs is how we close the gap. The government has a terrible track record when it comes to creating good, private sector jobs with government money. Even spending nearly $1 trillion in 2009 failed to make much of a dent in the unemployment rate.

We need a strong safety net to help Americans that fall on tough times. But we don't want people to become entangled by government support. The vast majority of Americans want to find a good job and work their way up the economic ladder.

But what happens when someone finds out that they are actually worse off when they get a better job? That sounds counterintuitive, but it's a real problem. Government benefits are cut off when people reach certain income thresholds. This cliff can actually discourage workers from finding a better job or taking on more hours. What good is more income if it means losing even more in food stamps or medical benefits?

This week, the Congressional Budget Office released a shocking report showing that the Affordable Care Act will decrease the number of jobs in America by 2.5 million over the next ten years. It's important to understand what this report is trying to say.

The CBO is not predicting that 2.5 million people will receive pink slips because of the law. What they are saying is that the law will discourage millions of Americans from working or working more hours. They estimate that all this discouragement of work will add up to the equivalent of 2.5 million full-time jobs.

Almost all these jobs lost will be on the low end of the income scale. Obamacare subsidies stop for people with incomes above 400 percent of the poverty line.

So how does this affect income inequality? Let's look at two individuals at opposite ends of the economic spectrum.

A young single mother qualifies for Medicaid in Maryland if her income is less than 130 percent of the poverty line. Her hourly job lets her take over fellow workers shifts to increase her income. However, if she works too many hours this year her income might go over the threshold. If she loses Medicaid benefits, she has to enroll in an Obamacare exchange insurance plan.

While these plans are subsidized, that may not make up for the fact that her previous care had no monthly premium or annual deductible. Essentially, the young woman ends up trapped at a lower income unless she can find a job that gives her the big bump in pay she would need to make up for the lost Medicaid benefits.

Meanwhile, Sergey Brin, one of the founders of Google, is almost guaranteed to see his personal wealth increase. Google is a global powerhouse that is expanding its business around the world. If Google's stock does as well this year as it did last year, he could see his net worth increase by billions. The gap between him and the single mother grows.

Government programs may help people get by, but they can be a powerful restraint on any attempt to move up the economic ladder. The new CBO report demonstrates that Obamacare is another program that discourages Americans from working.

That is not what America needs right now. We need to build a nation where people can take every opportunity that is presented to them. The classic American story of success starts at the bottom, but ends at the top. This has always been a long, difficult ladder to climb, but Obamacare is knocking out rungs on that ladder. If we want people to keep climbing, we need health reform that encourages work.

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