Two Million Jobs Will Disappear Due to Obamacare, CBO Predicts; Deficit to Rise

by Hans Bader on February 4, 2014 · 3 comments

in Healthcare, Politics as Usual, Regulation, Zeitgeist

“The new healthcare law will slow economic growth over the next decade, costing the nation about 2.3 million jobs and contributing to a $1 trillion increase in projected deficits, the Congressional Budget Office said in a report released Tuesday. The non-partisan group’s report found that the healthcare law’s negative effects on the economy will be ‘substantially larger’ than what it had previously anticipated,” reports The Hill. “The CBO is now estimating that the law will reduce labor force compensation by 1 percent from 2017 to 2024, twice the reduction it previously had projected. This will decrease the number of full-time equivalent jobs in 2021 by 2.3 million, CBO said. It had previously estimated the decrease would be 800,000.”

Originally, the Congressional Budget Office had wrongly concluded that Obamacare would reduce the deficit. It reached that incorrect conclusion by allowing supporters of Obamacare to hide its costs through accounting gimmicks and dodges. But in 2010, after Obamacare passed, it began increasing its cost projections for Obamacare, and also admitted “that Obamacare includes work disincentives likely to shrink” the economy.

Obamacare contains massive marriage penalties that discriminate against married people, and huge work disincentives for some older workers. It has slashed hiring, cut economic growth, and induced employers to replace full-time workers with part-time employees, driving even unions that once backed it to seek its repeal or replacement. Obamacare’s medical device tax has caused layoffs by medical manufacturers.

Due to Obamacare, millions of health insurance policies have been canceled, or replaced by policies with higher premiums and deductibles. In November, the president announced a supposed “fix” that was illegal, didn’t restore the canceled policies, and was designed to scapegoat insurers rather than restore lost health insurance. In December, the president announced another “fix” that made things even worse, by illegally violating property and contractual rights, in a way that may drive up insurance premiums in the future. The administration’s illegal 2013 suspension of reporting requirements mandated by the healthcare law may lead to billions of dollars in fraud.

Hans Bader February 5, 2014 at 12:14 pm

The false White House spin is that the 2.3 million fewer jobs is just the result of the end of “job lock”: people quitting their jobs because they no longer have to work to get employer-provided health insurance. But the work force is also shrinking due to employers’ cutting hours and positions (the CBO has cited employer penalties as a factor), and due to workers reducing hours worked or quitting their jobs, even when they have no desire to do so, due to a “cliff effect” that pressures them to leave their jobs.

Under the “cliff-effect,” people are being pressured out of the work force due to income cliffs in eligibility for tax credits on the Obamacare health insurance exchanges. These are people who aren’t working to access employer-provided health insurance (because they don’t get any employer-provided health insurance – and thus aren’t locked in to their jobs to get health insurance), but rather are getting insurance on the exchanges, which cut off the tax credits that pay for the lion’s share of their costly, taxpayer-subsidized health insurance premiums if their income rises by just a few dollars (like the hypothetical 62 year old discussed below):

I discussed this in an earlier blog post:

http://www.openmarket.org/2013/09/26/massive-marriage-penalties-in-obamacare-health-insurance-exchanges/
. . . . .
Obamacare includes work disincentives . . . For example, it effectively creates a 35,618 percent marginal tax rate for one hypothetical 62-year-old whose income rises by $22, by triggering the sudden loss of $7,836 in government tax credits (as Ted Frank explains below).

As a newspaper columnist notes,

“The new health law will give some older households without access to employer care a big incentive not to earn too much. That’s because earning more than 400% of the poverty level would make them ineligible for subsidies that may be well in excess of $10,000 for couples. Consider this example of a single individual age 62 in a high-cost area and no access to employer care. According to the Kaiser Family Foundation’s Health Reform Subsidy Calculator … at 400% of the poverty level, or $46,000, an individual would get $7,830 in premium subsidies. And at 401% of the poverty level, an individual would get no government support.”

http://blogs.investors.com/capitalhill/index.php/home/35-politicsinvesting/2154-cbo-confirms-obamacare-discourages-work

Or, as legal commentator Ted Frank notes, under Obamacare,

“a 62-year-old in a high-cost area earning $46,000 a year without health insurance is entitled to a $7,836 government tax credit. Leaving aside how our strapped government can afford that, here’s what’s interesting: if the same person makes a mistake and earns an extra $22 in income, he loses the entire $7,836 credit. (The cutoff, according to Kaiser, is between $46,021 and $46,022.) That’s a 35,618% marginal tax rate. Indeed, the problem is so severe that our 62-year-old subject will have more take-home pay if he earns $46,000 than if he earns $55,000. And even at lower income levels, there is as much as a 16% surcharge on income at the margin.”

http://www.pointoflaw.com/archives/2010/10/confiscatory-ob.php

This penalty for working and earning more is the result of really lousy drafting on the part of the authors of Obamacare. They could easily have avoided this problem by gradually phasing out the premium subsidies and tax credits, the way the tax code gradually phases out personal exemptions and itemized deductions for people who make well over $100,000 a year. But they were too arrogant to learn anything from existing provisions that worked.

Hans Bader February 6, 2014 at 3:08 pm

The Hill, whose article I quoted, seems to have reorganized and reworded its story after I quoted from it (such as adding in the White House spin, such as how the “White House swiftly pushed back against the findings.”)

The original version of the article from the Hill, including the verbatim quotes found above, is still found reproduced at Free Republic at:

http://www.freerepublic.com/focus/news/3119096/posts

Here is the portion of the article I quoted from:

“The new healthcare law will slow economic growth over the next decade, costing the nation about 2.3 million jobs and contributing to a $1 trillion increase in projected deficits, the Congressional Budget Office said in a report released Tuesday.

“The non-partisan group’s report found that the healthcare law’s negative effects on the economy will be “substantially larger” than what it had previously anticipated.

“The CBO is now estimating that the law will reduce labor force compensation by 1 percent from 2017 to 2024, twice the reduction it previously had projected.

“This will decrease the number of full-time equivalent jobs in 2021 by 2.3 million, it said. It had previously estimated the decrease would be 800,000.

“It said this decrease would be caused partly be people leaving the workforce in response to lower jobs offered by employers, and increased insurance coverage through the healthcare law.

“It also said employer penalties in the law will decrease wages, and that part-year workers will be slower to return to the work force because they will seek to retain ObamaCare insurance subsidies.

“The healthcare law isn’t the only reason the CBO is projecting slower economic growth between 2014 and 2023, however. It also cited inflation and lower productivity as reasons why it was lowering its projections.

“The slower growth will mean less tax revenue, which will add to the deficit. Instead of adding $6.3 trillion in deficits from 2014 to 2023, the government will add $7.3 trillion, CBO now projects.

“By 2023, the gross debt of the United States will be $26 trillion, up from a projected $25 trillion.”

David M February 5, 2014 at 6:38 pm

You still have a factually untrue headline. The CBO does not say that Obamacare will increase the deficit.

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