A prediction by Congress' official scorekeeper that President Obama's health care law will discourage work has caused a huge stir in Washington, but the projection needs to be viewed as part of a broader challenge facing the United States in the coming decades.
On Feb. 4, the Congressional Budget Office released its budget and economic outlook update for the next decade, and Republicans immediately seized on a part of the report looking at Obamacare's effects on the labor force.
The report forecasted that by virtue of the way the law's benefits are allocated, it would create incentives for individuals to work less or drop out of the workforce altogether. When all the hours of work lost as a result of these decisions were added together, the CBO said it would translate into a decline of 2.5 million “full-time equivalent workers” in the economy by 2024.
This confirms what conservatives have been arguing for decades about how the welfare state discourages work and creates more government dependency. But it also comes at precarious time in U.S. economic history.
Following World War II and throughout much of the second half of the 20th century, the U.S. economy rapidly expanded. During the middle of that period, baby boomers provided more labor and women entered the workforce in record numbers. In 1950, just 34 percent of women participated in the workforce, according to the Bureau of Labor Statistics, but that number grew to 60 percent by 2000.
Tax revenue generated by the economy during this period was high enough to sustain a burgeoning welfare state.
In the coming decades, however, this process is expected to reverse itself.
Instead of a growing younger population and women entering the workforce in droves, labor force participation rates are declining.
The same CBO report projected that after 2017, “economic growth will diminish to a pace that is well below the average seen over the past several decades” as labor force growth slows due to the aging of the population.
At the same time as the economy is on shakier ground, welfare state obligations are exploding as baby boomers retire and health care costs grow.
In 2024, spending on Social Security, Medicare, Medicaid and the Obamacare health insurance exchange subsidies will absorb two-thirds of the $4.9 trillion in revenue the CBO expects the federal government to collect. Add in the rest of mandatory spending and interest payments on the debt, and 96 percent of tax revenues will already be spoken for before Congress allocates money to pay for defense, veteran's benefits, education, transportation, the court system, international affairs and other budget items.
After 2024, the CBO warned, “the fiscal outlook is even more worrisome.”
In short, the CBO is portraying a future in which a smaller proportion of workers in a relatively weaker economy will be expected to subsidize an increasing number of government beneficiaries. And Obamacare is making matters even worse.
With one hand, according to the CBO, Obamacare will spend $2 trillion over the next decade on expanding Medicaid and subsidizing individuals to purchase health insurance. With the other hand, its subsidies will discourage the economic equivalent of 2.5 million individuals from working.
The rational response to the CBO report would be to look for policies that encourage workforce participation and decrease government obligations. Instead, Obamacare does the exact opposite.