The Congressional Budget Office report’s findings on Obamacare have drawn most of the attention, but we shouldn’t ignore some other powerful findings.
The president wants the rich to pay “a little more.” But here is what they currently do, according to a Dec. 4 CBO report: “Higher-income households pay much more in federal taxes than do their lower-income counterparts: They have a much greater share of the nation’s before-tax income, and they pay a much larger proportion of that income in taxes. Households in the top quintile (including the top percentile) paid 68.8 percent of all federal taxes, households in the middle quintile paid 9.1 percent, and those in the bottom quintile paid 0.4 percent of federal taxes.” Our tax system is very progressive; our benefits system (Social Security, Medicare, Obamacare) is less so. We should stop worrying about the marginal tax rate for Warren Buffett’s secretary and worry more about the drain on taxpayers from Social Security and Medicare payments to rich people.
Elected officials have harped on discretionary spending while ignoring the bigger drivers of debt. As a result, in the recent report, “CBO projects that the federal budget deficit will fall from 4.1 percent of GDP last year to 2.6 percent in 2015—and then rise again, equaling about 4 percent of GDP between 2022 and 2024. That pattern of lower deficits initially and higher deficits for the rest of the coming decade would cause federal debt to follow a similar path. Relative to the nation’s output, debt held by the public is projected to decline slightly between 2014 and 2017, to 72 percent of GDP, but then to rise in later years, reaching 79 percent of GDP at the end of 2024. By comparison, as recently as the end of 2007, such debt equaled 35 percent of GDP.”
And then there is the labor market. Obamacare’s negative impact on labor participation is only part of the problem. CBO explains: “More than four and a half years after the end of the recession, employment has risen sluggishly—much more slowly than it grew, on average, during the four previous recoveries that lasted more than one year. At the same time, the unemployment rate has fallen only partway back to its prerecession level, and a significant part of that improvement is attributable to a decline in labor force participation that has occurred as an unusually large number of people have stopped looking for work.” That is the “Obama recovery” — and it’s not simply a result of retiring baby boomers:
Of the roughly 2 percentage-point net increase in the rate of unemployment between the end of 2007 and the end of 2013, about 1 percentage point was the result of cyclical weakness in the demand for goods and services, and about 1 percentage point arose from structural factors . . .
Of the roughly 3 percentage-point net decline in the labor force participation rate between the end of 2007 and the end of 2013, about 1½ percentage points was the result of long-term trends (primarily the aging of the population), about 1 percentage point was the result of temporary weakness in employment prospects and wages, and about one-half of a percentage point was attributable to unusual aspects of the slow recovery that led workers to become discouraged and permanently drop out of the labor force.
Employment at the end of 2013 was about 6 million jobs short of where it would be if the unemployment rate had returned to its pre-recession level and if the participation rate had risen to the level it would have attained without the current cyclical weakness.
In sum, the CBO refutes a number of liberal talking points, not merely Obama’s claim that Obamacare would increase employment and growth. It turns out the rich already pay a lot more than their “fair share” by any reasonable definition. The president may take credit for the Budget Control Act, but it has done little if anything to abate our longer-term debt problem. Lagging job growth and decreasing labor participation rates are symptomatic of the Obama economy and can’t be explained away by demographic trends. Obamacare will simply worsen the Obama economy’s lousy results. That impact, however, is not incidental; the CBO previously thought the equivalent of 800,000 jobs would exit the workforce; now that is 3 times at 2.5 million. It is a big deal — but only part of the bleak Obama economic picture.