With this week's federal announcement that millions of middle- and low-income people are getting a surprisingly large number of taxpayer dollars attached to their participation in the Obamacare health plans, can we begin to take seriously the idea that the fiscal policies and regulations hidden in the Affordable Care Act are shrinking our economy?

Real GDP fell last quarter, but the conventional wisdom says that cold weather gets all of the blame. If we add the self-employed to payroll employment, we would see that nationwide employment fell last month for the first time in more than a year, but we are collectively ignoring that as a statistical aberration too.

At first glance it might appear that the Affordable Care Act helps people get access to health care and disproportionately benefits low-income households without many new taxes. By one estimate, the ACA's tax increases are less than 0.5 percent of gross domestic product, and less than several other hardly memorable tax increases of the postwar period. The White House suggested that health reform would largely pay for itself, without mentioning taxes that, individually or in combination, would have more than a "little effect" on the labor market.

Politicians and journalists use the term tax more narrowly than economists do, but the economic definition is needed to understand the economic effects of the ACA. Suppose, hypothetically, that the government provided a "universal" $2,000 health benefit to every person and paid for it with a tax, in the narrow sense of the word, of $4,000 per employee. Employees are half the population, so the employee taxes average $2,000 per person and are enough to pay for the universal benefit.

Now consider an alternative "targeted" approach that pays the $2,000 health benefit only to people who do not work, and gets the revenue from a $2,000 tax per employee. By excluding workers from the benefit, the targeted approach appears to spend and tax less: only $1,000 per person. But the economic result is the same because, in both systems, employees pay $2,000 more than they receive. In both systems, people who are not employed receive more than employed people do: in the universal system their lack of employment exempts them from a large tax whereas in the targeted system it exempts them from a smaller tax but also gives them access to a benefit that is withheld from workers.

Withholding benefits from people who work or earn is hardly different than telling them to pay a tax. For this reason, economists refer to benefits withheld as "implicit taxes." What really matters for labor market performance is the reward to working inclusive of implicit taxes, and not the amount of revenue delivered to the government treasury according to economically arbitrary distinctions between implicit taxes and other taxes. The targeted system gives the same economic results, including the economic harms from taxes, as the universal benefit system does but without the (politically ugly) appearance of bringing significant revenues to the government treasury.

The ACA resembles the targeted approach because it is full of implicit taxes. Many of them have remained hidden in the "fog of controversy" surrounding the law and their effects excluded from economic analyses of it. The chart below puts the ACA's new taxes in perspective of federal tax increases over the past seventy years. The taxes include federal personal income taxes (Form 1040, shown in pink), social insurance payroll taxes (gray), and various employment and implicit taxes (red).

The chart does not show revenue for the U.S. Treasury-that statistic is vulnerable to some of the arbitrary distinctions noted above-but instead shows the effect of various tax laws on the incentives for workers to earn more labor income rather than less as measured by a marginal labor income tax rate (by marginal labor income tax I mean the extra taxes paid, and subsidies forgone, as the result of working). During a period that included more than a dozen tax increases, the ACA is arguably the largest as a single piece of legislation, adding about six percentage points to the marginal tax rate faced, on average, by workers in the economy. The only way to cite larger marginal tax increases would be to combine multiple coincident laws, such as the Revenue Acts of 1950 and 1951 and the new payroll tax rate that went into effect in 1950. Even with these adjustments, the ACA is still the third largest marginal tax rate hike during the seventy years.

Another feature of the ACA that distinguishes it from other large marginal tax rate rises is that the former is, by law, entirely permanent whereas essentially the only other permanent ones shown in Figure 1.1 are the payroll tax rate changes.

Let's not be surprised that, as we implement a new law that taxes jobs and incomes, we are ending up with fewer jobs and less income.