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Will the foundation of Obama’s plan lead to prosperity?

Welcome to VoteFacts.  During his plea to American voters to give President Obama a second term, former President Bill Clinton said this:

"He has laid the foundations for a new modern successful economy of shared prosperity."

To many, this is a soothing concept in a time of great uncertainty. That means it's great politics.  Further, in an earlier post, we presented you with non-partisan data so that you could cast your vote on whether or not you find the Obama plan to be similar to what worked in the 1990's under the Clinton Administration.  However, President Clinton's words on President Obama's vision are, in part, a systemic change that, we think, warrants some investigation.  Let's dig in and  turn to the non-partisan Congressional Budget Office (CBO), the Department of Treasury, the Office of Management and Budget (OMB), the Center for Medicare and Medicaid Services (CMS).

We  start with the size of our national debt and how that impacts our future economy as well as incomes.  According to the Office of Management and Budget (OMB) total public debt outstanding has increased by greater than $5 trillion dollars over the president's first term:

• Between January of 2009 and September 12, 2012 total public debt outstanding went from $10.626 trillion dollars to $16.046 trillion dollars, an increase of more than $5 trillion dollars before the end of his first term.  Treasury.gov

• Debt held by the public is projected by CBO to stand at 73 percent of GDP at the end of this year—about twice the 36 percent of GDP it measured at the end of 2007.  CBO, Page 5

Here is what the CBO warns when it comes to debt, our future, and prosperity in America.

• Some of the consequences of mounting debt would arise gradually: A growing portion of peoples savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that crowding out of investment would lead to lower economic output and incomes than would otherwise occur.  CBO

•  In addition, if the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce economic output.  Rising interest costs might also force reductions in spending on important government programs.   CBO

If federal debt continues to expand faster than the economy - as it has since 2007 - the growth of people's income will slow, the share of federal spending devoted to paying interest on the debt will rise more quickly, and the risk of a fiscal crisis will increase.  CBO, Page 1

Adding to that, all four of the budgets submitted by the president during his first term were projected by the CBO to lead to prolonged fiscal imbalance, with spending higher than revenues for as far as the CBO projected eye could see.  This, of course, leads to even greater mounting debt.

(CBO links at bottom of page)

Similarly, since what is up for discussion here is shared prosperity, let's look at projections by our trusted resources when it comes to some of President Obama's biggest goals and achievements for America. 

• The creation of new jobs is probably hindered today not only by the weak current demand for goods and services but also by some firms' lack of confidence in the sustainability of the economic expansion and by remaining constraints on access to credit for some firms. In addition, some businesses may be unsure and concerned about how they will be affected by the implementation of recently enacted financial and health care legislation, by the governments regulatory policies in other areas, and by possible future changes in federal tax and spending policies.  CBO, Page 46

• Employers' decisions to hire workers will also be affected in some cases by the health care legislation... Employer penalties, whose amounts are based on the number of full-time workers in the firm, will, over time, generally be passed on to workers through reductions in wages or other forms of compensation. However, firms generally can not reduce workers' wages below the minimum wage, which will probably cause some employers to respond by hiring fewer low-wage workers. Alternatively, because firms are penalized only if their full-time employees receive subsidies from exchanges, some firms may instead hire more part-time or seasonal employees.  CBO, Page 32

• Regardless of how the allowances were distributed, most of the cost of meeting a cap on C02 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline.  Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households…  Job losses in those industries would be likely to impose a fairly large burden on a relatively small number of households; investors’ losses, by contrast, would tend to impose a smaller burden on a much larger number of households.  CBO, Pages 1-2

• The Centers for Medicare and Medicaid Services anticipates that the fees and the excise tax would generally be passed through to health consumers in the form of higher drug and device prices and higher insurance premiums, with an associated increase in overall national health expenditures ranging from $2.1 billion in 2011 to $18.2 billion in 2018 and $17.8 billion in 2019.  CMS, Page 17

• Requiring employers to offer health insurance - or pay a fee if they do not - (such as it is now under the new health care law), is likely to reduce employment, although the effect would probably be small. Those who would most likely be affected are currently paid close to or at the minimum wage. They would be more vulnerable to job loss because their wages could not be lowered sufficiently to absorb the cost of health insurance (if their firm decides to offer) or the fee (if their firm does not) without bumping into the minimum wage.  CBO

• The impact of play-or-pay requirements on the employment of low-wage workers would be similar to the effects of raising the minimum wage - and the latter has been studied extensively.  Although findings from those studies vary greatly, the weight of the evidence suggest that raising the minimum wage has a negative but small effect on the employment of low-wage workers.   CBO, Page 4

According to CBO's projections, if current laws remained in place, spending on the major federal health care programs alone would grow from more than 5 percent of GDP today to almost 10 percent in 2037 and would continue to increase thereafter.  CBO, Page 2

When it comes to the strength of the economy, the CBO said this about the president's most recent budgetary proposal:

Under the President's proposals, the nation's real economic output during the 2013-2017 period would be, on average, between 0.2 percent lower than the amount under current law and 1.4 percent higher than under current law. For the 2018-2022 period, CBO estimates that the President's proposals would reduce real economic output, on average, by between 0.5 percent and 2.2 percent compared with what would occur under current law.  CBO, Pages 1-2

Are you feeling the shared prosperity yet?  To be sure, there are things that are looking brighter, like many of our current seniors who will pay less for their Medicare prescriptions (although many others will pay more for theirs, and the programs main fund still faces exhaustion by 2022-2024), many 26 year-olds who might have remained uninsured are now able to be insured under their parents health plan, the cap on out of pocket health care costs, and the fact that some people will get a subsidy from the government to pay for their likely higher costing premium (although we have addressed the sustainability of those subsidies in a prior post). 

There is a lot to cover when it comes to things that impact our economy and therefore prosperity.  However the debt and sustainability of our government's budget surely tops the list of what can impede or enhance our nation's prospects for a prosperous future.   Some might wonder how we can possibly share prosperity that does not exist.  Others might feel that our future's so bright, we gotta wear shades.  Where do you fall?

If you want to look a little more closely at President Obama's vision for America's future through the eyes of all four budgets that he has submitted, you can focus on those CBO facts in our post titled, "The President's budget at the White House website is a serious plan for tackling the deficit."



Resources

Obama 2013 Budget

Obama 2012 Budget

Obama 2011 Budget

Obama 2010 Budget



VoteFacts original post date:  September 17, 2012
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