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CBO report low-balls Obamacare effects on employment

By PETER MORICI, UPI Outside View Commentator   |   Feb. 5, 2014 at 9:04 AM   |   Comments

COLLEGE PARK, Md., Feb. 5 (UPI) -- A new Congressional Budget Office report once again low-balls the effects of the Affordable Care Act on labor force participation and the U.S. economy. Gross domestic product growth and employment for most workers will be harmed.

The CBO report estimated employment will be cut 1.5-2 percent, thanks to workers choosing to cut hours or not work at all to obtain Obamacare subsidies for private insurance or maintain eligibility for Medicaid.

The report says, lower employment translates into a 1 percent reduction in workers' compensation, owing to the concentration of those in low-wage categories. However, the report fails to adequately calibrate the effects of higher Medicare taxes and the surcharge on interest, dividends and capital gains on the participation of older workers -- especially high-productivity and entrepreneurial workers and business owners over 50 but heretofore not yet inclined to cut hours or retire altogether.

In addition, it fails to consider the consequences of distorted career paths on labor productivity, negative effects on research and development spending and lower investment overall in the United States. Those activities will be lost to China, Japan and Germany and other competitors in Asia and Europe owing to their lower healthcare costs.

Major industrialized competitors in Europe and Asia spend 9-12 percent of GDP and often attain higher healthcare outcomes, while the United States spends 18 percent. Medicare's and Medicaid's own actuaries expect the latter figure to rise under Obamacare, thanks to the inadequacies of cost controls.

Whether paid through direct taxes, business outlays for health insurance or penalties for failing to provide healthcare, as mandated by the Affordable Care Act, those costs weigh heavily on cost competitiveness and decisions to locate manufacturing and service activities in the United States, especially those critical to R&D effort and innovation.

The Obama administration argues that subsidies for healthcare and Medicaid give Americans more personal choices and decisions not to work improve the performance of the economy. Taken to its logical conclusion, the administration should provide direct cash payments to workers to abstain from seeking employment.

Rolling it all up, the effects on the economy beginning this year and escalating through the decade is likely in the range of $240 billion to $320 billion.

This will damage the viability of the Social Security trust funds and shake state and local government finances. More cities, like Detroit, will face bankruptcies. States like Illinois will face lower credit rating and be forced to reduce funding for education, public safety and the like.

By failing to address the handicap imposed on U.S. businesses by higher healthcare costs, the Affordable Care Act, like other efforts to equalize income, will slow growth to a pace more akin to lethargic European economies than emerging competitors in Asia.

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(Peter Morici is an economist and professor at the Smith School of Business, University of Maryland and a widely published columnist. Follow him on Twitter: @pmorici1)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

Topics: Peter Morici
© 2014 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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