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The New Full-Time Employment Taxes

In: Tax Policy and the Economy, Volume 29

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  • Casey B. Mulligan

Abstract

The Affordable Care Act (ACA) introduces or expands taxes on incomes and full-time employment, beginning in 2014. The purpose of this paper is to characterize the new full-time employment taxes from the perspective of a household budget constraint, measure their magnitude, and assess their likely consequences for employee work schedules. When the ACA is fully implemented, full-time employment taxes will be prevalent and often as large as what workers can earn in five hours of work per week, 52 weeks per year. The economic significance of the ACA's full-time employment taxes varies by demographic group: they are nonmonotonic in age, increasing with family size, and negatively correlated with schooling.A full-time employment tax is a tax or penalty owed by, or subsidy withheld from, a person as a consequence of his full-time employment status. For the first time in 2014, millions of people face such taxes on their full-time work. More workers will face full-time employment taxes in 2015 when assessable employers owe penalties on the basis of the number of full-time employees on their payroll. Both of these taxes are provisions of the Affordable Care Act of 2010 (hereafter, ACA), on top of the longstanding taxes on incomes and payroll. This paper assesses the magnitude, direction, and economic characteristics of the full-time employment tax wedges created by the ACA.By definition, part-time employed and nonemployed persons are exempt from a full-time employment tax. I follow the usual steps of public finance analysis and first look at the tax wedge--the gap between supply and demand prices created by a tax or subsidy--before attempting to draw conclusions about the tax's behavioral effects and ultimate incidence. For simplicity, I assume that employees are legally liable for all marginal taxes and penalties and are legally entitled to all marginal subsidies, even when the actual liability falls on the employer. As long as prices can fully adjust to reflect supply and d
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Suggested Citation

  • Casey B. Mulligan, 2014. "The New Full-Time Employment Taxes," NBER Chapters, in: Tax Policy and the Economy, Volume 29, pages 89-132, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:13462
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    References listed on IDEAS

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    1. Casey B. Mulligan, 2013. "Is the Affordable Care Act Different from Romneycare? A Labor Economics Perspective," NBER Working Papers 19366, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Casey Mulligan, 2015. "Fiscal policies and the prices of labor: a comparison of the U.K. and U.S," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-27, December.
    2. Jack W. Britton & Jonathan Gruber, 2019. "Do Income Contingent Student Loan Programs Distort Earnings? Evidence from the UK," NBER Working Papers 25822, National Bureau of Economic Research, Inc.
    3. Hanming Fang & Andrew J. Shephard, 2019. "Household Labor Search, Spousal Insurance, and Health Care Reform," NBER Working Papers 26350, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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