January 2014

A $3 Trillion Tax Increase: Another Policy Disappointment

By John R. Hendrickson

Robert W. Merry, a political writer and historian, wrote that “the greatest myth in American politics today is the view, perpetrated by the Democrat Left and elements of the news media, that Barack Obama is a political moderate.”[1]  A survey of the rhetoric and policies of President Obama suggests otherwise, as Merry argues:

In truth he represents an ideology that is barely within the American mainstream as understood over two and a quarter centuries of political experience. Indeed, the crisis of American politics in our time is a crisis of political deadlock, and it is a deadlock born largely of the President’s resolve to push an agenda for which he has no clear national consensus.[2]

The policies that have emerged from President Obama’s administration and the Democrats in Congress have pushed the nation further toward the direction of socialism and they have also failed to solve the major problems confronting the nation. In regard to the economy the nation is still struggling to emerge out of the Great Recession. Unemployment remains high and policy uncertainty is an albatross on the economy. An editorial in Investor’s Business Daily noted that “the latest GDP [Gross Domestic Product] report shows that President Obama’s policies continue to weigh down the economy. Now 51 months old, his recovery is by far the weakest since the Great Depression.”[3]

The policies that have resulted in the uncertainty include the Dodd-Frank Act, the Patient Protection and Affordable Care Act (ACA), the economic recovery stimulus, among others that have not only failed to bring about economic recovery, but increased the debt to dangerous levels. In fact President Obama and the Democrats in Congress, through their spending, have added $6 trillion to the national debt. This explains why the national debt is $17 trillion and growing and why the federal government has been running large deficits, sometimes approaching a trillion.

In addition to the massive increase in spending, taxes have also increased which hinders economic growth. Curtis Dubay, a Senior Analyst in Tax Policy at The Heritage Foundation wrote:

President Obama has already raised taxes substantially twice — first as part of Obamacare and then part of the ‘fiscal cliff’ deal earlier this year. Together, those increases raised taxes by more than $1.3 trillion over ten years. Including the payroll tax increase that was also part of the fiscal cliff deal, taxes have risen by almost $3 trillion during President Obama’s tenure.[4]

In fact the actual cost of taxes will continue to rise under President Obama because of the Patient Protection and Affordable Care Act. Originally the mandate under the Affordable Care Act was not designed to be a tax, but a penalty or fine for those individuals and businesses who did not have health care insurance. The Supreme Court’s decision in National Federation of Business v. Sebelius ruled that the mandate was unconstitutional under the Commerce Clause, but as Chief Justice John Roberts’ reasoned the penalty was a tax, and therefore the mandate was constitutional under the tax power of Congress:

Under [Chief Justice] Roberts’ saving interpretation of the ACA, no one is required to purchase health insurance, so there is no mandate. There is only a tax on people who don’t buy insurance. And, the Court said, that tax must be low enough to preserve ‘choice’ or the option to not buy insurance. No one can be punished for being uninsured.[5]

The Supreme Court’s ruling classifying the mandate as a tax will be problematic for Democrats, as law professors Randy Barnett and Josh Blackman explain:

The Democrats in Congress must now admit they have imposed a tax on young and healthy Americans to get them to take the bad deal that is Obamacare. And any suspension of this tax must be scored by the Congressional Budget Office so the public knows the size of the tax increase that will be imposed on the American people when the delay ends and the tax kicks in…On the other hand, if the Democrats insist the penalty is not a tax, then they will be admitting that it is unconstitutional under the Supreme Court’s decision.[6]

The Affordable Care Act, which will not only cost taxpayers trillions of dollars, but will also lead to a substantial tax increase as individuals and businesses will be taxed for not complying with the ACA mandate.

Whether it is the debt crisis fueled by out-of-control spending, tax increases, or a massive increase in regulation these have all led to an unnecessary prolonged economic malaise. John Taylor, a Senior Fellow at the Hoover Institution and a Professor of Economics at Stanford University, described the impact of some of the recent legislation on the economy:

The Dodd-Frank Act, meant to promote financial stability, has called for hundreds of new rules and regulations, many still unwritten. The law was supposed to protect taxpayers from bailouts. Three years later it remains unclear how large complex financial institutions operating in many different countries will be “resolved” in a crisis. Any fear in the markets about whether a troubled big bank can be handled through Dodd-Frank’s orderly resolution authority can easily drive the U.S. Treasury to resort to another large-scale bailout. Regulations and interventions also increased in other industries, most significantly in health care. The mandates at the core of the Affordable Care Act represent an unprecedented degree of control by the federal government of the activities of businesses and individuals, adversely affecting incentives to hire and work and eventually worsening the federal-budget outlook. Federal debt held by the public has increased to 73% of GDP this year from 41% in 2008 — and according to the Congressional Budget Office, it will rise to more than 250% without a change in policy. This raises uncertainty about how the debt can be brought under control.[7]

“Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high,” stated Taylor.[8] Unless policy changes the current situation will continue, which will push the nation further down the road of national decline. The time is approaching fast when the nation can no longer afford the cost of progressive policies.

John R. Hendrickson is a Research Analyst at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] Robert W. Merry, “The myth of a moderate Obama,” The National Interest, May 1, 2013,<http://nationalinterest.org/article/the-myth-moderate-obama-8376> accessed on April 26, 2013.

[2] Ibid.

[3] Editorial, “Obama’s recovery: $1.3 trillion below average,” Investor’s Business Daily, November 7, 2013, <http://news.investors.com/ibd-editorials/110713-678405-obama-recovery-remains-worst-since-the-depression.htm> accessed on November 8, 2013.

[4] Curtis S. Dubay, “Leave Tax Reform and Tax Increases Out of Budget Conference,”  Issue Brief, No. 4074, October 29, 2013, The Heritage Foundation, Washington, D.C., <http://www.heritage.org/research/reports/2013/10/leave-tax-reform-and-tax-increases-out-of-budget-conference?ac=1> accessed on November 8, 2013.

[5] Randy Barnett and Josh Blackman, “Dems may have to admit Obamacare tax increase,” USA Today, October 31, 2013, <http://www.usatoday.com/story/opinion/2013/10/30/delay-obamacare-website-congress-obama-health-care-column/3315785/> accessed on November 7, 2013.

[6] Ibid.

[7] John B. Taylor, “Economic failure causes political polarization,” Hoover Institution, October 28, 2013, <http://www.hoover.org/news/daily-report/160431> accessed on November 8, 2013.

[8] Ibid.