Three-quarters of the nation’s workforce works in large firms subject to the employer mandate (50 or more workers). The lion’s share of these workers are going to be subject to this Obamacare tax simply because they work at large firms. How is that possibly fair? Do you recall President Obama ever announcing that to bankroll his new health plan by penalizing low-wage workers who happened to work at large firms?  Can you imagine the firestorm of protest that would have erupted had he been so honest?

Union outrage over Obamacare stems from a much larger problem affecting a broad swath of workers—not just those who happen to have union health benefits. Obamacare levies a grossly unfair tax on workers in large firms—a tax that is particularly unfair since it hits those with the lowest wages hardest. The tax also is very inefficient as it will lead to all sorts of distortion in labor markets.

As Avik Roy explained months ago, the misguided employer mandate arose due to concerns that large numbers of employers would elect to drop their coverage and dump their employees onto the health exchanges.  The reason they might do this is because for many workers, the subsidies available to those who purchase exchange coverage are massively higher than the subsidies available to workers who purchase coverage through their employer.

Careful calculations by researchers at the Urban Institute have shown that a small firm worker in a family of 4 earning a poverty-level wage ($24,000) who will be eligible to purchase coverage through the exchange will get a tax-paid subsidy of $18,432. This includes a premium subsidy of $13,598 (leaving the employee responsible for paying $502, which is just over 2% of family income) and an additional subsidy of $4,834 (leaving the employee responsible for $166).[1]  An equivalently-compensated worker working for a large firm who obtains the identical health plan through his employer would receive no tax subsidy whatsoever. In fact, due to the peculiarities of the Earned Income Tax Credit (EITC), that worker actually would end up paying $123 more in federal taxes than his small firm counterpart who receives no employer-provided health benefits whatsoever![2]

But the story gets much worse. Because the large firm worker is getting employer-paid health benefits, his cash compensation is $11,000 lower than his counterpart working for a small firm. Take a moment to let that sink in. The small firm worker, who earns $11,000 more than his large-firm counterpart, is nevertheless getting an $18,000+ tax-paid subsidy for health care while the lower-paid large firm worker absorbs his family’s cost of health care ($14,100 in premiums plus $5,000 in out-of-pocket expenses) entirely on his own!

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