When it comes to social engineering, you can usually depend on Washington to do the wrong thing. If it is not overturned, Obamacare will increase income inequality by imposing a new tax on younger workers. Older Americans are growing richer while younger Americans are getting poorer, as shown by the Federal Reserve’s Survey of Consumer Finances, for the period 2001-2010. Households headed by a person under age 44 saw their median income decline more than 14%; those headed by someone age 65-74 enjoyed a 25% rise in median income.
This long-term trend has been exacerbated by the sluggish economic recovery, which has kept unemployment rates extremely high for younger workers. The unemployment rate is 8.2% for those aged 25-34 versus 6.4% for those over the age of 44.
The financial problems of young adults are compounded by educational debt. Two thirds of college students graduate with college loans, which averaged $25,500 in 2010.
What has President Obama done for these young adults struggling with declining incomes, high unemployment, and heavy education debts? He is hitting them with a big new tax, Obamacare’s individual mandate. It requires citizens without healthcare coverage to pay a penalty, which is the greater of $695 per year up to a maximum of $2085 per family, or 2.5% of household income. The tax will be phased in over three years starting in 2014; after 2016 it is indexed to inflation. So in 2016 a household earning $50,000 pays 2.5% or $1,250, which is worse than it sounds because $1,250 is a much larger share of after-tax income. This tax will hit younger adults the hardest, because they are more likely to lack health insurance. According to the Census, 28% of people age 25 to 34 do not have Health Insurance Coverage vs. 16% for those age 45-64 and 2% for those over 65.
Given these multiple burdens on younger workers, it is no wonder the economy is weak. Where are the outraged Keynesians bemoaning Obama’s destimulative fiscal policy?
Sources: Federal Reserve, Survey of Consumer Finance; BLS; U.S. Census
