What’s striking about the latest CBO reports showing the ACA leading to millions of fewer jobs is the reason for this. It’s not that these workers are going to be laid off. It’s that they will choose to work less, either to qualify for low-income subsidies or Medicaid or because they will no longer need jobs to get insurance. Some people think this being the basis of the fewer jobs is a good thing a counterpoint to ACA opponents. To me, this is the bigger problem.
And it’s part of a broader issue. There’s a cumulative effect of all the numerous attempts to eliminate income inequality, which start but are by no means limited to the progressive tax rates (and also include income-based reductions to the EIC and the per child tax credit plus any number of other tax-related components) including eligibility for any number of social assistance programs. The ACA is highly progressive as well, including both income-based subsidies for exchange plans as well as features which reduce the cost-sharing components of the plans for lower-income individuals.
People like to harp about the income inequality and make comparisons to other eras and so on, but – from what I’ve seen – they tend to focus on gross income, and thus ignore the real net income-plus-benefits that actually determine living standards. The irony is that efforts to rectify income inequality generally do not focus on gross income, so the “problem” can never be fixed using the standard which is being used to measure it. This guarantees that nominal income inequality can be used in perpetuity to justify an unending list of redistribution schemes, since while these corrective measures impact the lives of the people involved, they don’t impact the criteria used to justify them.
The upshot of all this is that the true marginal “tax” rates are significantly higher than whatever income tax rate is being bandied about, and can act as a brake on motivation to work, as recognized by this CBO report.
Of course, the CBO report is only about the ACA, because they happen to have been tasked with assessing the impact of this particular program. But the same logic applies to all other progressive programs.
[Note: this is not to suggest that all progressive taxes or social assistance programs should be eliminated, of course. Only to say that that the progressive impact of all of them needs to be viewed as a whole, and the impact of this on productivity and work-motivation considered, and I don’t think this is currently being done.]