Daeyong Lee, a new assistant professor in human development and family studies, uses data related to consumers' health care decisions to peer into families' financial stability. Photo by Ryan Riley.

Lee draws economic insights from US tax, health care policy

Daeyong Lee is helping American households guard their financial treasure.

It’s a fitting role for the new assistant professor in human development and family studies, a native Korean whose name “Daeyong” translates as “big dragon” in English.

“Whenever people find a new tax provision, they want to take advantage of it to minimize their tax burdens,” Lee said. “American tax policy is changing all the time, so by understanding these provisions, families are better prepared to make solid financial decisions and protect their earned income.”

In a paper published in “Applied Economics,” Lee explored the 2003 U.S. Jobs and Growth Tax Relief Reconciliation Act, which changed the tax rates for dividends. He said the empirical findings from the IRS Public Use Tax File data suggest American households moved to take advantage of the preferential tax treatment of qualified dividends over long-term capital gains to reduce the tax burdens on their stock investments — showing changes in behavior stemming from federal policy changes.

From tax policy to health care policy

Lee began his look into household financial matters and consumer behavior during his doctoral studies at the University of Washington, where he received awards for teaching excellence. He said U.S. federal tax rules that do not include employer-sponsored health insurance benefits in an individual’s taxable income intrigued him. As Lee explored U.S. Census Bureau data to look into the subject, he found the tax rules affected American workers’ job selection and working hours.

“Workers who highly value health insurance benefits are more likely to find a job offering a health insurance plan, or they’re more likely to work in a full-time position to sustain those benefits,” Lee said. “This, in turn, affects their savings and financial decisions.”

Using the U.S. Census Bureau’s Survey of Income and Program Participation, Lee found under the Affordable Care Act, households significantly reduced their liquid assets (savings in banking and interest-bearing accounts) by $897. The findings appeared in the journal “Economics Letters.”

“By analyzing nationwide survey data sets, I ask whether households are strategically leveraging current health care policy to maximize their happiness,” Lee said. “With the Affordable Care Act, American families reduced their precautionary savings, since with greater access to health insurance, they don’t have to set as much money aside for medical emergencies.”

Lee said while the U.S. Census Bureau data sets are robust, they only go so far.

“The secondary data set is really great, but at the same time, those data sets have certain limitations,” he said. “The secondary data set does not tell us whether the insurance premium money for a 19- to 25-year-old child is paid by the parent or the child. We need to go to the field and ask where the premium payments are coming from.”

Into the field

Peering into specific areas of health care policy — such as the extension of dependent coverage — helps researchers better understand human behavior and help all Americans, Lee said. He said Iowa State University’s focus on extension and outreach gives him the channels to find the answers he seeks.

“The most attractive thing for me about Iowa State — why I love the school — is we have an extension program where our faculty members interact with local communities,” he said. “I’m easily able to talk with colleagues and interact with people in local communities to understand how knowledgeable they are about government policies and in which way they change their financial decisions.”

Jonathan Fox, the Ruth Whipp Sherwin Endowed Professor and director of the ISU Financial Counseling Clinic, said that’s a major part of the human development and family studies philosophy.

“Our approach in instruction, research, outreach, and engagement is defined by the human element in the financial planning process,” Fox said. “Daeyong’s work in family tax policy analysis builds on strengths in our department. Tax policy is constantly evolving, and research on the human response to policy changes is sorely needed to inform the next round of changes.”

Lifelong learning

By learning more about the effects of the United States’ health insurance system, Lee said economists can better trace resulting behavioral changes in those who are beginning a profession.

“Does the Affordable Care Act incentivize people to start their career at a young age, or does the Affordable Care Act lead people to change their career plan or their financial plan to go from being independent from their parents to being dependent?” Lee said. “I’d like to answer those questions.”

Lee is also dedicated to helping his students draw conclusions about their own learning. He said he enjoys getting to know his students outside of the classroom, making conversations and sharing experiences.

“Students can forget their original goal for entering a program,” Lee said. “I like to help them get re-energized by having conversations.”