Obamacare will Reduce Wealth

One of the most destructive parts of Obamacare is set to be enacted this fall.  At that time, every American will need to tell the IRS how much they expect to make the next year.  This, in turn will determine the supplement each person gets for health insurance.

While this is probably a necessary step (how else would the government know how much to send you?), the issue comes at the end of the year.  If you guess you will make less than you actually do, the IRS will send you a big bill because you will have received too big a supplement.  There will may be interest and penalties attached, which no one will want to pay.  The effects will therefore be as follows:

1.  If people guess low, there will be a strong incentive for hourly workers to work less.  This means people will avoid working overtime or may even take leave without pay near the end of the year if they are in danger of going over.  They will also be more reluctant to take on overtime throughout the year.  If people work less, there will be less produced, meaning products that do get produced will cost more and there will be fewer goods and services.

2.  Small business owners will close down and not expand to keep their incomes below limits.

If a person is a small business owner, they may shut down for a few months near the end of the year, possibly laying off or furloughing employees when they do so.  This will mean fewer jobs and fewer services near the end of the year.

3.  It may be very difficult to get work done near the end of the year.

Private contractors are one business that has a strong ability to increase or reduce work.  If a contractor gets more work early int he year than he expects, he may not take any other jobs later in the year that might push him over the limits.

4.  There will be a lot of pay under-the-table and fraud.

Because collecting more than you expected will cause a penalty, expect there to be even more under-the-table transactions than there currently are since accurately reporting all income could cause penalties.  There will also be the incentive to guess low in the first place since doing so will result in keeping more of your income.  There have always been many who cheat on their taxes.  Expect there to be even more people now.

In all there will be less productivity since the incentive is not to work.  As less is produced, the price of things that are produced will be greater.  This will mean that the standard of living for the middle class and the poor will decline.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


  1. I don’t know a ton about Obamacare, primarily because news media doesn’t do its job anymore. So, I am curious as to what kind of leeway there is in estimating your income. If you’re saying that making $1000 more than what you estimated will cause large penalties, then that seems ridiculous and a bit hard to believe. In other words, the government can’t expect you to account for an end of year bonus you MIGHT receive more than 12 months in advance (or unforeseen things along those lines). Now, if you’re saying that underestimating by $10,000 will incur penalties, well then I’d say you’re most likely gaming the system to begin with. It’s pretty rare that someone would make significantly more than they expect unless a huge unexpected promotion comes along (or unless you’re a stock broker such as yourself and you just have an amazing year). And if that’s case, it’s not like it’s happening every year.

    Don’t get me wrong, I can’t stand Obama and I think policies such as The “Affordable” Health Care Act are going to ruin this country. So, I am on the same page with you there. But I am just not sure I see these specific side effects that you mention in this post being a large contributor to that end. Maybe I am wrong; as I said, I don’t know a ton about Obamacare (well, at least not as much as you probably do). But maybe you can enlighten me. When do the penalties kick in? Why doesn’t the law just allow you to pay back the portion of healthcare compensation you receive in proportion to the amount of money you gained over your projection? In other words, say making $40,000 “entitles” (huge oxymoron there) me to receive $4,000/year in healthcare compensation, and if I make $45,000, that entitles me to only $3,500. So, I tell the government in December that I plan to make $40,000 in 2014 and they bestow on me the $4,000 bracket of healthcare. Then in February I get a promotion with a 10% raise, and in December I get a $1,200 bonus, and I basically make it up to that $45,000 level. Why wouldn’t the government just ask for the $500 ($4,000 – $3,500) back, maybe via taxes? Are you telling me that they are going to penalize so harshly that I’d literally stop working to avoid the penalties? As a very conservative person who can’t stand Obama, I even find this hard to fathom.

    Anyway, any further enlightenment would be much appreciated. And please be more specific. If there’s one piece of constructive criticism I’d give this blog, it’s that it is much too general. What people reading this blog want to know (at least I am guessing based on what I’d like to know – and I am probably right dead center of the demographic you’re trying to reach), in any given topic, is exactly how it will effect them. Maybe, from now on, you could just pretend you’re making $50,000 per year and just write the blog from that perspective. I think this would be much more practical then a bunch of generalities.

    • Andrew-

      Thanks for the comment. I was able to find and AP story on the subsidies and implications:


      As far as penalities go, I confess I wasn’t able to find any mention of penalties in the story. Normally if you file estimated taxes and pay less than you owe at the end of the year you will need to pay interest and penalties. I’m not certain if this would be true if you underestimated your income and therefore got too large a subsidy or not. Actually, I don’t think anyone really knows since this is still a moving target and the rules are still being written.

      Even in repaying the subsidy, however, given that you would be losing your subsidy as you increase your income, this would have the effect of discouraging some people from making more, even if there are no penalties (which would be difficult to believe, given the way other tax law works). Ideally people would prefer to get the extra income and get to the point where they didn’t get a subsidy at all, but evidence from the Welfare and Disability programs show that there are a substantial number of individuals who don’t take on more work if it decreases their benefits. They are perfectly rational in the short-term, although long-term many of them would be far better off working more and climbing out.

  2. Thanks for the reply.

    I think you’re in the same boat as I am in that the law is a moving target and we’re not sure exactly what to expect. But rather than assume there will be penalties, it just seems more worthwhile to wait and see the law enacted. I agree that the economic impact of this law will overall be negative, but I am just not sure this specific aspect will be what nets that negative effect. Point being, using my hypothetical example, that if you make $5,000 more in a given year than projected, and have to pay back the excess $500 of subsidy, there is still plenty incentive to work; $4,500 is a big deal. From the article you attached, it doesn’t sound like there will necessarily be penalties, just the requirement to reimburse the government for the excess subsidy they gave you up front. To be honest, I have no problem with that and don’t think anyone else should either. Don’t get me wrong, I do have a problem with the subsidy in the first place, but that’s a whole different argument. If we’re living in a world where Obamacare is a reality, which it obviously is, I don’t take issue with paying back the excess subsidy if I were to earn more than expected – that just makes logical sense as long as they don’t penalize on top of it. They’ve got to start somewhere, so they make an estimate based on your previous year’s tax return, and they adjust during the following tax year. No harm, no foul. At that point, it’s like car insurance. They charge you based on an estimate of how many miles you are expected to drive. Then the following year, they adjust your policy depending on if you drove more or less than that estimate. In other words, they’re always tracking one year behind. However, if penalties come, then I’d take issue with it, but I am not sure that’s going to happen.

    I agree that the overall effect of Obamacare will probably be similar to other social programs in that people just won’t work because they’ll attempt to max-out their benefit. But I think that will be a problem from the beginning, not something that will just kick-in come December when people realize they’re going to exceed their reported estimated income. If they were working in the first place, got a raise, and are now expecting to make $5000 more, I don’t think those are the people who are going to stop working at the drop of a hat just to save the $500. No one in that position would decide that it wasn’t worth it to keep working in order to earn the extra $4,500. I mean, if you walked up to someone and said, “I will give you $5000 for the next month’s work if you pay me $500”, or you can just have $500. I think 99.9% of those already working would take the additional $4,500. You could make the same argument about tax brackets, right? But no one, who by working in the month of December puts them in the 15% tax bracket just stops working so they stay in the 10% bracket. No, they continue to work, and December’s pay gets taxed at the 15% rate, while the money they made prior gets taxed at 10%. I don’t see any real difference here.

    • People are funny about taxes though. How many people keep a mortgage for the deduction? There they send $10,000 to the bank to get $1000 back on taxes. States with sales tax holidays also see huge demand on those days even though people are only saving about 10%, which wouldn’t excite them at all as a store sale.

      The effect will probably not be on people who get a raise, but on those able to flex their income. Hourly workers who can choose not to work overtime. People who provide services like home repairs who can choose to not take jobs. I think as they see that they will be paying 30 cents on each new dollar made, versus 20 cents on each dollar before that point, they may decide to just take some time off.

      I think there is also a point for everyone where they say it just isn’t worth it. Ronald Reagan had the example where he could choose to do another movie or to sit by the pool. If the next movie would put him in a tax bracket where he only took home 40 cents for each dollr, he might sit by the pool. If he took home 60 cents for each dollar, he might do the movie. And when he decides not to do the movie, the entire production staff is out of a job.

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