November 2014

Debt and Taxes: President Barack Obama’s Twin Economic Legacies

By John R. Hendrickson

In the presidential election of 2008 then Senator Barack Obama campaigned on liberal ideas and policies under the umbrella slogan of “hope and change.” Out of ignorance, the nation voted for “hope and change” partly because of the severity of the Great Recession and anger at the previous administration under President George W. Bush. Fast forward to today. The nation has emerged from the Great Recession, but the economy is still in fragile condition and the nation is at a dangerous level in regard to our debt level. In addition, President Obama’s historic legislation, the Patient Protection and Affordable Care Act (Obamacare) not only is unconstitutional, but provided for the further takeover of health care by the federal government. The Affordable Care Act also represents one of the largest tax increases in our history and it is contributing to the poor economic recovery. President Obama’s twin economic legacies consist of a massive historic tax increase and a dangerous increase in the national debt, both of which are causing substandard economic growth and resulting in the decline of the United States.

The Affordable Care Act is the most revolutionary piece of legislation that has been passed in sometime and its impact is already substantial on the nation. This legislation is not only resulting in an increase in healthcare costs, but it is also resulting in increasing unemployment. Although the federal government claims that the unemployment rate is 6.1 percent, the actual rate is more than double that when people who are underemployed or dropped out of the workforce altogether are taken into consideration. A major reason for this massive level of unemployment is the Affordable Care Act and the mandate, which is forcing business not to hire fulltime employees.

John Merline, writing in Investor’s Business Daily, stated that “federal, state, and local governments will spend a total of $1.4 trillion on health care this year, which will account for a record-high 46 percent of the nation’s total health care tab…”[1] Government involvement, especially at the federal level, greatly increased during the 1960s under President Lyndon B. Johnson’s Great Society and its two landmark programs, Medicare and Medicaid. As economist Peter Morici states:

Back in the 1960s, many Americans paid for doctor and hospital services out of pocket or through modestly priced private insurance. Health care spending was about 6% of the country’s gross domestic product. Enter President Lyndon B. Johnson and Medicare. He bought millions of votes by giving seniors free health care that they never paid for through payroll taxes during their working years. He also helped lay the foundations for the entitlement state with Medicaid. Medicaid, which was conceived to help poor children, has been gradually expanded to include many working families.[2]

Morici notes that “today health-care spending is more than 17 percent of GDP [gross domestic product].”[3] Spending on healthcare is expected to rise as well as a result of the overall impact of the Affordable Care Act. As Morici explains:

Before ObamaCare, federal and state governments were already financing about half of all health-care spending. At that level, federal reimbursement rates and rules no longer mirror the market; those become the market. The decisions of private insurers — each much smaller by dollars spent than federal outlays — fit in around those policies. It was already Soviet health care but without the benefit of free access, as private premiums, deductions, and co-pays soared. Now ObamaCare is throwing new sand into the gears by fining individuals who lack employer-provided insurance and fail to purchase a plan from the government marketplace. No surprise, next year those policies are expected to jump in cost by as much as 30%. Medicare actuaries are forecasting health spending will rise at 6% a year during the next decade and is on pace to reach 20% of GDP by 2025.

The administration has obfuscated the issue. Government numbers show Medicare expenditures growing more slowly, but that’s because the new law raises premiums, cuts benefits, and slices reimbursements to doctors and uses the cash saved to subsidize the federal and state insurance exchanges.[4]

Avik Roy, a Senior Fellow at the Manhattan Institute, describes the Affordable Care Act as one of the “largest tax increases in U.S. history.”[5] “Over the next decade, Obamacare increases taxes by more than $1.2 trillion: one of the largest tax increases in U.S. History, and the largest in nominal dollars,” argues Roy.[6]  In addition, the Affordable Care Act will place a large burden on the federal budget, which will cost taxpayers trillions.

The cost of healthcare and other related entitlement spending is driving the debt crisis. A recent analysis of federal spending by the staff on the Republican Senate Budget Committee illustrates this point:

Spending growth is primarily concentrated in entitlement programs and interest on the national debt. Spending for mandatory programs (such as Social Security, Medicare, Medicaid, and federal subsidies for health insurance under Obamacare) will grow by 72 percent over 10 years, while interest on the debt will more than triple to $799 billion (up from $227 billion today). Outlays for annual appropriations on items such as the military, courts, and prisons will increase by 18 percent over 10 years, largely because CBO assumes that such spending will not exceed the statutory discretionary spending limits established by the Budget Control Act. Refundable health insurance subsidies, exchanges, and related spending required under the Affordable Care Act (ACA) are expected to increase eightfold to $137 billion (up from $17 billion today) as the program becomes fully operational over the next decade. Medicaid, the eligibility for which was expanded under the ACA, will grow by 87 percent, while Medicare will grow by 72 percent. Gross Medicare expenditures will exceed $1 trillion annually beginning in 2023. Social Security benefit payments will grow by 78 percent, exceeding $1 trillion annually beginning within just four years. As noted, net interest costs rise sharply and will exceed the costs of national defense in 2023.[7]

This brings up the second legacy of President Obama and that is the massive increase in the national debt. The national debt is currently at $17.8 trillion and it has increased by $7 trillion since President Obama assumed office. The debt will continue to get worse as more money will be spent on the welfare state to provide for entitlement programs. Investor’s Business Daily noted that “despite 0 percent interest rates, $7 trillion in added debt, more than $1.5 trillion in stimulus, and the Fed creating more than $4.5 trillion in new money out of thin air, our economy just stumbles along.”[8]

Terence Jeffery, Editor in Chief of CNSnews, describes the significance of our debt crisis:

In 1943, 1944, and 1945, during the war [World War II], federal spending ran at 46.2 percent, 42.7 percent, and 41.0 percent of GDP. Since then, it has never exceeded 25 percent — and has averaged 19.3 percent. For the federal government to balance the budget at 25 percent of GDP, it would require a sustained level of federal taxation unprecedented in American history. For the federal government to maintain the current welfare state without balancing the budget would require accumulating levels of debt unprecedented in American history.[9]

Both the Affordable Care Act and the reckless spending are already causing damage in the economy and the result is the further decline of the United States. Unfortunately these two issues are just part of the legacy of the current administration. Recently former Attorney General Edwin Meese III, who served in President Ronald Reagan’s administration, offered perhaps a historical summation of the administration when he stated that “this is the most lawless administration in the history of the country.”[10]

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] John Merline, “Health care’s big spender: It’s the government at 46% post-Obamacare,” Investor’s Business Daily, September 5, 2014, <> accessed on September 8, 2014.

[2] Peter Morici, “Ouch, the bill for Obamacare coming due,” The Street, September 8, 2014, <> accessed on September 9, 2014.

[3] Ibid.

[4] Ibid.

[5] Avik Roy, “Obamacare is dampening the job market in three principal ways,” Forbes, September 1, 2014, <> accessed on September 5, 2014.

[6] Ibid.

[7] Republican Senate Budget Committee Staff, “SBC Staff Analysis of CBO’s Updated Budget and Economic Outlook,” Senate Budget Committee, Budget Backgrounder, August 27, 2014, United States Senate Committee on the Budget, Republicans, <> accessed on September 9, 2014.

[8] Editorial, “These five facts debunk U.S. jobs recovery myth,” Investor’s Business Daily, September 5, 2014, <> accessed on September 8, 2014.

[9] Terence Jeffrey, “America’s question: Cut or crash?” Creators, August 13, 2014, <> accessed on August 13, 2014.

[10] Genevieve Wood, “Ed Meese: ‘This is the most lawless administration in the history of the country,’” The Daily Signal, September 9, 2014, The Heritage Foundation, <>