By GARRETT BALDWIN, Economist Money Morning October 15, 2013
Over the weekend, the San Francisco Chronicle delivered a stunning message that discourages and demotivates American workers from earning more income and promotes greater government dependency.
It's all thanks to sloppy incentives created by the Affordable Healthcare Act.
The Chronicle reported that Karen Pollitz, a senior fellow at the Kaiser Family Foundation, said last week that workers in California should consider reducing their 2014 income and work hours in order to qualify for Obamacare subsidies.
"If they can adjust (their income), they should," said Pollitz. "It's not cheating, it's allowed."
For a California family to fall under the 400% of poverty-level ceiling (the threshold to qualify for government assistance), the family's net income must be at or below $62,040. However, if they make just $1 more than this amount, they will not qualify for thousands of dollars in public assistance to purchase healthcare.
Earning $62,041 would trigger a massive increase in taxes and cost of healthcare premiums for the family.
In progressive terms, that amounts to a loss of a subsidy worth more than $10,000 each year for a family of four.
This is all part of a perverse welfare system that has for decades discouraged economic advancement.
As these Obamacare incentives now begin to creep into the lives of the middle class, the government is playing an extremely dangerous game with state dependence. This will have a staggering impact on the economic health of the middle class.
Incremental Income Displacement
For decades now, a debate has swelled on the influence of welfare on the motivations of Americans to find work or advance their careers to the next level. Some critics have argued that welfare discourages work and enables some to live off the production of their neighbors.
Meanwhile, supporters of the system believe it is a vital safety net that prevents Americans from living in squalor and limits economic inequality.
While the welfare system may have the best intentions, it is poorly designed. It's a flawed system that creates disincentives for workers to climb the ladder of economic development.
Then individuals decide to stay at lower-paying jobs to maintain welfare benefits instead of taking better pay, more responsibility, and freeing themselves of government dependence - a line known as the "welfare cliff."
Just take this example from Pennsylvania...
Gary Alexander (the state's secretary of Public Welfare) explained in 2012 that a single mother is better off making $29,000 than she is making $69,000 thanks to the massive influx of public programs available to support her and two children.
At $29,000 in gross income, she will end up with $57,327 in pay and social benefits. But as she begins to increase her gross income (or take-home pay), those benefits erode, and her net income and benefits begin to shrink.
She would not make the same amount of money to pay her own way until she adds another $40,000 in gross pay. In fact, her net income at $69,000 is still lower than the benefit-laden salary above since she would only have $57,045 after taxes.
The welfare-related benefits remove the incentive for her to take a new, better-paying job - even if the new position offers greater career-building skills and development. That's how the flawed welfare system gets people hooked to government programs.
Now Obamacare will allow this problem to slowly creep into the economic decisions of the middle class. This will trigger a serious impact on entrepreneurialism, the public debt, and growth in the economy.
Obamacare's Creeping Terror on the Middle Class
Pollitz encouraged any family thinking of getting subsidized health insurance from Covered California in 2014 to cut their incomes down to qualify. But Pollitz failed to understand the consequences of her suggestion...
When Americans make less money, they contribute less to the public treasury. However, these same Americans will be pulling thousands of dollars out of the pool and placing a greater strain on available resources.
Over time, this will create a perpetual downward spiral where more is being consumed than being produced. The only way to stop-gap the problem is to borrow more, tax more, and spend more, while politicians pretend that the collective drain on society isn't a problem.
Americans will have to make the irrational economic decision to pay more and attempt to earn more money through extra work if the nation wishes to survive the consequences of this law. It is all part of an ongoing trend that continues to plague society as we move from a productive class to a privileged class, where people expect more money and benefits for less work.
In the United States, we used to have the world's greatest entrepreneurial class in the world. We built bridges and buildings and businesses.
Now, we just reach into one another's pocket.
And Obamacare is a shining example of the perverse incentives Congress continues to peddle.
Go here to find out what Obamacare will do to your wallet - and how to protect your money today.
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