Obamacare Will Blow Up The Budget Deficit

Posted by Jeff Carter
on February 22nd, 2012

Guest Post from Peter Huff:

While attention has been paid to Treasury Secretary Geithner’s admission last week that the Obama administration does not have a long term plan to address the deficit, he also provided a view into the administration’s beliefs regarding the effect of Obamacare on the deficit.

When asked why, under his budget, the deficits skyrocket after the 10-year budget window:

Treasury Secretary Tim Geithner: Let’s ask ourselves why they take off again. Why do they do that?

Congressman Paul Ryan: Because we have 10,000 people retiring every day and healthcare costs going up.

Treasury Secretary Tim Geithner: That’s right. We have millions of Americans retiring every day and that will drive substantial growth rates for healthcare costs. We’re not becoming before you to say we have a definitive solution to our long-term problem.

It is a remarkable statement because it reveals that Geithner understands, and admits as such, that the Obamacare legislation does not “bend the cost curve” of healthcare costs. After all, this is the White House’s own budget, and they have the ability to make numbers conform to their narrative, as they have with other issues. That they cannot show a positive effect on the deficit trajectory is striking enough on its own, but the admission that this is due to growing healthcare costs is startling given the certitude that the health reform legislation would positively manage costs.

An intriguing part of the statement is that Geithner lays part of the blame on rising deficits on retiring workers. Everyone understands that workers retirement is an accepted part of the cyclical nature of employment. However, two points become apparent. The first is that Geithner and the Obama administration need the older workers because older workers earn more money than younger workers, and if they earn more money, then they are paying more money in income taxes.

The second is that the statement implies that the administration is not confident that the workers entering the workforce will earn enough or be of sufficient numbers to offset the revenue lost from retiring workers. Given the trend in unemployment statistics, especially among the youngest of wage earners, and the administration’s tax policies, it is not surprising that their economic models cannot provide in reality what the optimism of cost containment was used to sell Obamacare to the public.

If we are to take the administration at its word, that higher-earning worker retirements will result in funding gaps, then it paints the administration into a corner where it must either look towards middle-income earners for additional revenue or continue unsustainable deficit spending.

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And of course, in 2013 after the election, the Bush tax cuts will go away and taxes will rise on the middle class. Additionally, in Obama’s budget, he proposed tax increases on the middle class along with tax increases on the wealthy.

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