Friday, July 24, 2009

Congress & Econ 101: Fail

[Welcome Industry Radar readers!]
What is it about Congresscritters that completely blinds them to simple economics? Take the current "health care debate:" one of the arguments against the Public Option is that it will encourage employers to drop their current group plans, leaving their employees to fend for themselves via the PO. The counterargument is that, by doing so, these employers will face a large fine - an additional 8% payroll tax.
The counter-counter-argument is that employers will gladly pay this fine, if it means they can successfully rein in their total expenses by dropping their current coverage.
Both of these schools of thought flunk:
No employer will ever pay the fine.
That's so important that it bears repeating:
No employer will ever pay that fine.
But Henry, you may argue, of course they'll pay it if they drop their group policy. It'll be the law!
To which I'd reply: So what?
Employers won't pay that fine any more than they pay for the group coverage in the first place. It is a cost of doing business that comes out of the employee's gross wages. Employers don't pay any of those costs, either. They are simply deducted from the employees' wages when calculating the total cost of employment.
Likewise, these "fines" will be passed along to employees (in the form of lower wages) and consumers (in the form of higher costs).
Why is that so difficult to understand?
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