Obamanomics – It’s Worse Than You Think

July 6, 2011 07:05

Barack Obama owns the Second Great Depression of 2011. His policies – call them Obamanomics – are to blame.

By: Joseph L. Bast at The Heartland Institute

The official unemployment rate is back up to more than 9 percent, and the percent of workers who are unemployed or have given up trying to find jobs is higher than it was during the Great Depression.

George W. Bush may have owned the Great Recession of 2008–2009, but Barack Obama owns the Second Great Depression of 2011. His policies – call them Obamanomics – are to blame.
It Started with Higher Taxes

President Obama signed his first major tax increase into law just 16 days into his presidency, a 62-cents-per-pack tax increase on cigarettes. It broke his campaign promise not to increase taxes “a single cent” on households making less than $250,000 a year.

If it weren’t for furious public backlash during the 2010 elections, Obama would have reversed the 2001 and 2003 tax cuts, causing the top income tax rate to rise from 35 to 39.6 percent and the lowest rate to rise from 10 to 15 percent. The capital gains tax rate would have risen from 15 to 20 percent, and the dividends tax rate from 15 percent to 39.5 percent in 2011 and then another 3.8 points in 2013. The marriage penalty would have returned, and the child tax credit would have been cut in half.

According to the Tax Foundation, a two-income family earning $120,000 and two kids would have seen its income taxes go up $4,500 in the first year. And that assumed no Alternative Minimum Tax penalty.

Obama buried more than $500 billion in tax hikes over ten years in Obamacare, including a 10 percent tax on tanning salons, a $60 billion tax on insurance premiums, a $26.3 billion tax on medical device manufacturers, a $27 billion tax on prescription drugs. Starting in 2013, the 3.8 percent Medicare payroll tax will apply to investment income, a move that is expected to raise $123 billion over seven years.

Obamacare increases the Medicare hospital insurance payroll tax by 31 percent on income over $200,000 for singles and $250,000 for couples, expected to raise $86.8 billion over seven years. The itemized deduction from federal income taxes for medical expenses is reduced by raising the threshold from 7.5 percent of adjusted gross income to 10 percent, expected to raise $15.2 billion a year.

The tax deduction for employer-provided retirement prescription drug coverage is reduced, expected to raise $4.5 billion. And starting in 2018, a new special tax of 40 percent will apply to insurance policies costing more than $10,200 for individuals and $27,500 for families.

All this comes on top of a corporate income tax that is the highest of the 34 nations in the Organization for Economic Cooperation and Development. (Our combined state and federal rate is 39.2 percent, versus number two Japan at 35 percent.) Little wonder, then, that the recession was never as deep in other countries and their recovery has outpaced that of the U.S.
Then Came the Spending Increases

In his first year in office, Obama championed and signed into law a $787 billion “stimulus” act. Average spending for federal agencies rose by more than 50 percent between 2008 and 2010.

Federal government spending is now between 24 percent and 25 percent of GDP, up from 18 percent to 19 percent during the George W. Bush years.

The federal government now borrows 40 cents for every dollar it spends. In February, Obama unveiled a $3.73 trillion spending plan for 2012 with a projected deficit of $1.5 trillion. That comes on top of deficits of $1.3 trillion in 2010 and $1.4 trillion in 2009. The annual deficit, which was going down under Bush, jumped from 1.1 percent of GDP in 2007 to 11 percent this year.

Interest on the debt costs us $225 billion a year; the total debt stands at $14.2 trillion, 80 percent of GDP. That’s the highest since World War II.

Proposed cuts of $1 trillion or even $2 trillion over ten years sound enormous, but they shave barely ten percent off the proposed deficits, never mind actual spending. Just to get spending and deficits back to pre-Obama levels, spending has to be cut by $1 trillion a year, ten times what even most Republicans are talking about.
And Then Came Obamacare

Obama signed the Patient Protection and Affordable Care Act … all 3,256 pages of it … into law on March 23, 2010.

Most of the provisions don’t go into effect until 2014, but some of the taxes to fund it started immediately. By counting ten years of revenues and only six years of expenses, the administration was able to claim it will reduce the federal debt over the next ten years.

The Congressional Budget Office says the act will increase federal spending by $1 trillion over the first ten years … but if you start the clock four years later, the cost rises to $2.4 trillion. This is the most expensive legislation ever approved by Congress and signed by a president. And these estimates almost certainly under-estimate real costs.

Obamacare creates more than 150 new bureaucracies, agencies, boards, commissions, and programs, including an Independent Payment Advisory Board with a mandate to cut Medicare spending by $3 trillion over the next 20 years.

Government officials are empowered to tell physicians what quality health care is and what it is not, and to tell insurers what health insurance they can sell, and to tell employers and individuals what insurance they must buy. It redistributes premium income among insurers under a new “risk adjustment” mechanism to ensure successful companies subsidize less successful companies.

This is all right out of “Atlas Shrugged.”

And no, you will not be able to keep your current doctor, or your current insurance company. Chances are, your current employer will dump you into the insurance exchange, where you may or may not get any subsidy toward your insurance premiums, depending on your income. If you make more than the poverty level and currently get insurance through your employer, chances are your insurance costs will go up.

What will happen to the quality of health care in America? We can look at Britain and Canada to see what happens when government discourages investment, fixes prices, and rations care. Long waiting lines for tests and surgery; millions of people suffering chronic pain unnecessarily; thousands of people dying every year while waiting.

Some consequences of Obamacare will be less visible but no less damaging: Less investment in care for the most vulnerable, such as premature babies and the elderly; no more progress in the war on cancer; no more investment in new drugs and therapies.
Where To From Here?

So … things are pretty bad! But as my old friend Bob Genetski used to tell me, “big problems mean big payoffs when they are solved.” Just simplifying the tax code, for example, could have a huge effect on economic efficiency.

The biggest battles right now … the ones you need to get involved in, in order for us to win, are:

  • Don’t raise the debt ceiling. Either freeze it, or make an increase contingent on major entitlement reform. This is being debated as this issue of The Heartlander goes to press, and it appears Republicans … even Paul Ryan … are prepared to compromise too soon and too easily with this president. That would be a mistake.
  • The 2012 budget must reduce actual spending, not merely freeze discretionary spending it at current levels as Obama proposed. Ryan’s plan is a good starting point, but it could be improved to achieve a balanced budget sooner.
  • Block implementation of Obamacare. The House voted to defund it, but the Senate won’t follow suit. States can and should refuse to implement insurance exchanges.
  • Take on the public-sector unions … on collective bargaining rights, benefits, and pensions specifically. This is the ticking time bomb at the state and local levels that has to be defused.
  • Vastly and rapidly expand school choice. High levels of spending on public K-12 schools is unsustainable, and school choice is a proven way to cut spending while improving quality. Teacher unions are vulnerable now, making this an opportune time to adopt vouchers, tax credits, or new policy innovations such as the Parent Trigger.
  • Vastly and rapidly expand development of the nation’s energy resources. We are the Saudi Arabia of coal and natural gas, and our oil reserves are growing fast, too. The only thing standing between us and energy independence is anti-energy policies. Remove them, and drill, baby, drill!

Obamanomics is very much worse than you thought … but it can be stopped and undone. In the process, we can take back the country we love.

Joseph Bast (jbast@heartland.org) is president of The Heartland Institute.

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