Research Briefing

Third In A Series On How Obama’s Government-Run Health Care Experiment Will Harm The Economy

HEALTH CARE EXPERIMENT CREATES BILLIONS IN DEFICITS, ADDS TO TRILLIONS IN DEBT…

Obama’s Government-Run Health Care Experiment Would Add $239 Billion Deficit In Ten Years. “According to CBO’s and JCT’s assessment, enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion over the 2010-2019 period.” (Douglas Elmendorf, “Preliminary Analysis Of The House Democrats’ Health Reform Proposal,” CBO Director’s Blog, 7/18/09)

Health Care Experiment Part Of Obama’s Budget That Creates $9.1 Trillion Deficit Over Next Decade. (“An Analysis Of The President’s Budgetary Proposals For Fiscal Year 2010,” Congressional Budget Office, June 2009)

• Which Is Nearly The Amount Of Debt America Has Accrued In Its Entire History Up To July 2008 ($9.5 Trillion). (Public Debt, www.treasurydirect.gov, Accessed 7/20/09)

And Budget Analysts Report Obama’s Deficits Could Grow As High As $14.4 Trillion. ”The Concord Coalition Plausible Baseline, created using the Congressional Budget Office’s (CBO) updated projections, shows that current policy would lead to $14.4 trillion in deficits over the next 10 years … Concord’s plausible baseline uses CBO’s more pessimistic economic assumptions … It shows much larger deficits averaging $1.4 trillion from 2011-2019, or 8 percent of GDP.” (The Concord Coalition, “Concord Coalition Says New Projections Show Need For Health Care Cost Control and Deficit Reduction Plan,” Press Release, 8/25/09)

LEADING TO HIGHER INTEREST RATES HURTING AMERICAN FAMILIES AND BUSINESSES …

Obama’s Mounting Debt Will Cause Interest Rates To Skyrocket … “On May 21, Bill Gross, the co-chief investment officer of PIMCO … said the U.S. may lose its credit rating as the federal government issues trillions in additional debt. The consequences of such a development would be significantly higher interest rates facing the U.S. Treasury and possibly throughout the economy.” (J.D. Foster, “Obama’s Deficits Put U.S. Credit Rating At Risk,” Heritage Foundation, WebMemo 2465, 6/01/09)

Which Will Lead To Higher Home Mortgage Payments For American Homeowners ... “Ongoing deficits are a serious threat to the economy. We are living beyond our means and relying on the willingness of foreign nations to provide us financial capital. These countries … could easily stop lending so much money to the United States. Interest rates would then soar … For a family with a typical 30-year mortgage on a $225,000 house, an increase of just two percentage points in the interest rate would add $2,500 to their mortgage payment.” (Alice M. Rivlin and Isabel V. Sawhill, “Why Deficits And Debt Render The United States Vulnerable, Scripps Treasure Coast Newspapers, 2/21/07)

Higher Personal Loan Costs For American Families Financing Things Like Children’s College Tuition ... “A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates ... An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal … loans rise too.” (Nouriel Roubini, Op Ed, “The Spend-And-Borrow Economy,” Forbes, 8/27/09)

And Reduced Wages, Lower Living Standards For American Workers Due To Less Growth For American Businesses. “If they are financed domestically, deficits will gradually divert capital from productive domestic uses, through a rise in interest rates. This diversion reduces the amount of capital available to U.S. workers, lowering their wages and hence their living standards. If our deficits are financed from abroad, interest rates may not rise as much, but interest payments on these deficits will flow back abroad. In either case, the future national income of the United States and its citizens is reduced, businesses will find it harder to expand …” (Alan J. Auerbach and William G. Gale, “Deficit: What Caused It, Why It Matters,” CNNMoney.com, 7/30/09

TAKING AMERICA’S ECONOMIC FUTURE FROM OUR HANDS, INTO HANDS OF OTHER NATIONS …

Increasing Debt Places “Fate Of Our Economy” On America’s Debtors, Including China And Japan. “[W]e are paying an increasing proportion of this interest to foreigners rather than to our own citizens. A little more than half our debt is owned by people in other countries, primarily the Japanese and the Chinese … the present state of affairs perches the fate of our economy rather precariously on the opinion of other nations. If the Chinese decided, for economic or political reasons, to curtail their financing of our debt, our financial markets would be spooked, and a stock-market crash and recession might not be far behind.” (Isabel V. Sawhill, “Ignoring Debt Makes It Get Worse,” The Philadelphia Inquirer, 4/30/06)

Which Makes America Vulnerable To Another Large Financial Crisis. “[T]he possibility makes us unnecessarily vulnerable to what could be a full-scale financial crisis. Due to our fiscal irresponsibility we are losing control of our economic destiny and may be looking at a future where we cannot count on a standard of living that continually improves.” (Alice M. Rivlin and Isabel V. Sawhill, “Why Deficits And Debt Render The United States Vulnerable, Scripps Treasure Coast Newspapers, 2/21/07)

AND LIKELY HITTING CURRENT, FUTURE GENERATIONS OF AMERICANS WITH HIGHER TAXES

Government Will Look To American Taxpayers If It Needs Bailout From Debt. “The Administration’s four year estimate shows that by the end of September 2012, the Debt will have soared to $16.2-trillion, which amounts to nearly 100% of the projected Gross Domestic Product that year. The U.S. is running up so much debt so quickly, some investors are worried. Over the weekend, Chinese Premier Wen Jiabao, who says his country has about a trillion dollars invested in U.S. Treasury notes, said he wanted a guarantee. President Obama said Wen’s got nothing to worry about ... That’s because the U.S. government’s power to tax stands behind all of its debt. If Uncle Sam ever needs a bailout, then as now, taxpayers get nailed.” (Mark Knoller, “National Debt Hits Record $1.1 Trillion,” CBS News’ “Political Hotsheet” Blog, 3/17/09)

And Soaring Debt Makes Tax Increases Likely. “‘If you rule out inflating our way out of the problem and defaulting on the debt, there are two ways: ‘Cut spending or raise taxes,’ said William G. Gale, an expert on fiscal policy at the Brookings Institution. With more than 80 percent of federal spending devoted to politically untouchable programs such as Social Security, Medicare and Medicaid, he said, ‘it’s going to be really hard to make significant headway on the spending side. So that means you’ve got to think about taxes.’” (Lori Montgomery, “Tax Pledge Is A Target As Deficits, Debt Grow,” The Washington Post, 8/29/09)