More Obamacare surprises

Two recent pieces about hidden aspects of the Affordable Care Act that are just coming to light, almost three years after the law was passed.  Friday's WSJ reported that employers are just now learning about a $63 per person fee that companies will have to pay for each person they insure.  The proceeds will go to insurance companies to cover the higher medical costs they will face when they can no longer bar coverage to people with pre-existing conditions.  Naturally employers will pass some of this tax on to their workers, either through smaller raises or reduced health benefits.

Unions, once strong proponents of ACA, are now having second thoughts, reports the Weekly Standard.  Some union leaders expected that their plans would be given waivers from ACA requirements, but so far most of them are still waiting for their waiver.  Also, the most generous plans are subject to the "Cadillac tax," and -- surprise, surprise -- employers are not too crazy about paying union workers extra money to cover the tax. 

Two cheers for the payroll tax cut extension

Not so much for the extension itself.  The economic evidence on this front is overwhelming: temporary tax cuts provide little to no stimulus.  Also by extending the ability of workers to collect unemployment benefits for more than one year, Congress is locking in additional unemployment.

But we all knew the tax cut and benefit extensions were going to happen anyway in an election year.  To partially "fund" these goodies, Congress took two positive steps:

1) Changes to the Unemployment Insurance: WSJ reports that workers on involuntary part-time schedules now will be allowed to collect some benefits, which may encourage employers to keep workers on the payroll part-time (as opposed to layoffs).  Also programs such as Georgia Works, where the unemployed can collect benefits while going through training programs, also will expand.  Finally, the self-employed will now be covered by UI; not sure how this is going to work.

2) Spectrum auction: To fund the extra UI benefits, Congress agreed to auction off spectrum currently held by television stations to expand wireless networks.  NYT reports the auction is expected to raise $25 billion and will help us all play more games and watch more streaming videos on all our iDevices.  Some of the spectrum also will go to first responders.

Thoughts on the new stimulus, er, jobs plan

Most press attention on the $447 billion package has focused on four major components: a one year cut in the FICA tax for workers ($175b), a one year FICA cut for employers accompanied by additional incentives for those with growing payrolls ($70b), another extension of unemployment benefits along with a few new programs for the unemployed ($62b), and a package of "infrastructure" projects ($140b) that includes funds to rehire teachers, firemen and policemen for one year.  A few reactions, based on economic research:
1) There is a large theoretical and empirical literature that shows that temporary changes in the tax code have very little effect on economic activity.  Households will save most of the tax savings.  In sectors of the economy where jobs do not last more than a year, the tax cut may provide some boost in hiring but in sectors where jobs are expected to last longer, the tax cut pales against the likely future rising cost of health insurance.
2) Economic research also shows that extending the duration of unemployment benefits is highly correlated with unemployed people staying out of work longer.  In my ideal world, recipients would have to start government-supported training programs after six months or more of benefits; paying people not to work creates an obvious disincentive and does not address the shortages of labor in many technical and health-related occupations.
3) Although this was not publicized by the media, there are some original ideas on how to help the unemployed which, if scaled properly, might actually help.  These include tax credits for hiring the long-term unemployed or unemployed veterans, prorated unemployment benefits for those on reduced hours (which would encourage work-sharing over layoffs), and wage insurance to provide a buffer for the unemployed who find new jobs at vastly lower salaries compared to their previous jobs. 
4) State and local governments have already gone through wrenching decisions to pare down education and other government functions as Obama's original stimulus bill has wound down.  The Obama plan would allow these governments to bring back some employees for one more year, but then they would still have to be laid off again unless the stimulus, oops sorry, jobs bill were to become permanent.  Recent research on the 2009 stimulus package showed that giving money to cities and states does not always translate into job creation; it might mean less borrowing or larger payments to pension funds. 
Full details on the President's proposals can be found here.