Michael Maiello's picture

    What Ruth Marcus and Brookings Don't Get About Microeconomics

    Thanks to Hal for referencing The Washington Post's Ruth Marcus on Hillary Clinton the other day.  I don't read Marcus too regularly, but when I do, it reminds me why not reading her is probably an IQ booster.  In her latest, Marcus accuses Clinton of seeking to hurt American workers by her opposition to the upcoming tax on Cadillac health insurance plan. Marcus' logic, and she cites Brookings and the Obama administration as her back up, is:

    1) These expensive health plans are being paid for out of wages paid to workers.

    2) Eliminate the plans, which are basically a tax on wages and wages will rise.

    3) Over time.

    That last bit is fairly key and should probably be amended to "over time, if ever."  The problem is that labor markets are highly inefficient.  If you eliminate some form of non-cash compensation, it will not be magically replaced a cash payout.  If, for example, the government eliminated the Social Security tax, do you really believe wages would shoot up by 12% or more?

    That extra money does not have to go to workers.  It could be used to buy back stock or to pay dividends.  It could be hoarded in a savings account.  It could be used to acquire a competitor and lead to a net reduction in jobs.  There are, in short, a bunch of reasons why you can't count on this money showing up in your paycheck next week or even next year.

    Another problem -- even if such a move were net neutral for wages over time and all of this money found its way back into payroll, there's no guaranty that you would get the money.  If I eliminate health plans from Rick and Sally and decide that the savings should go to the workers, I can give all the savings to Rick -- reducing Sally's comp while giving him a wage. What's Sally going to do, quit?  I actually only gave Rick half the savings.  I used the other half to buy the only other place where Sally could have found a comparable job.  You're screwed, Sally. But don't worry, Ruth Marcus says you aren't.





    Good points. So am I reading Marcus right?---Clinton is too far Right on healthcare, and too far Left on TTP? Seems Hillary is always out of line.

    Have to say that I am left with the instinctive reaction, when my progeny are struggling to meet deductibles, that the existence of a family health plan in excess of 27,000 don't seem right.

    Interesting question.  Certainly opposition to the TPP is now associated with progressives so Hillary is, according to Marcus we can suppose, too far to the left on trade.  Opposition to the Cadillac Tax is harder to mark on the left-right spectrum.  But generally, I would suppose, the more liberal you are the more you oppose it.  Yes, it will increase the net income tax paid by some corporations.  But, only corporations that provide generous healthcare plans to their employees will be harmed by it. 

    If the tax is imposed, the ultimate result is likely to be a reduction in the quality of healthcare insurance some workers are now receiving.  Unions seem most opposed to this tax while neo-liberal economists support it.  This suggests to me that Marcus would view Clinton's anti-tax position as, like her anti-TPP statement, too far to the left.

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