Obamacare will push the equivalent of about 2 million workers out of the labor market by 2017 as employees decide either to work fewer hours or drop out of the job market altogether, according to estimates released Tuesday by the Congressional Budget Office.
The analysis set off a furious debate in Washington. The White House argued that the reduction is positive because it means Americans will forgo jobs or extra work to stay home with their children or strike out on their own as entrepreneurs. Republicans, however, said the report amounted to an “I told you so” moment and that subtracting the equivalent of 2 million workers can’t be good for the economy.
The CBO said the number of workers dropping out of the labor force will grow from 2 million in 2017 to 2.5 million by 2024.
Although part of those numbers are attributed to job cuts, the vast majority represent workers who decide it makes more sense to stay home or work fewer hours, weighing the higher taxes they pay in the workforce versus their qualifications for benefits if they drop out.
“CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 to 2 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive,” the nonpartisan tax agency said in its economic outlook.
The CBO also said the Affordable Care Act’s exchanges will enroll 6 million people by the first deadline in March, which is 1 million fewer than earlier projections. But by the end of the decade, the number of people without insurance coverage will have dropped from 45 million today to 30 million, the agency said in its annual update on the economic and budget outlook.
Powered by spending cuts, higher taxes and a slowly improving economy, the federal deficit will drop to less than a half-trillion dollars next year but then begin a steady climb to more than $1 trillion a year by 2022, according to CBO projections.
The CBO said the economic recovery from the deep recession from December 2007 to June 2009 is taking longer and won’t be as strong as previous recoveries. Analysts say the labor market’s fundamentals have shifted.
Obamacare is one part of that because it rearranges incentives for businesses and workers.
White House chief economic adviser Jason Furman said the health care law is about giving workers more choices. He compared it to Social Security and Medicare, which he said gave senior citizens the incentives and financial wherewithal to retire.
In this case, he said, the CBO’s numbers show that the health care law will let younger workers make decisions about whether to remain in the workforce.
“Maybe a spouse who wanted to be part-time so they could spend more time with their family now is able to do that,” Mr. Furman told reporters. “Somebody else who wanted to start a business and become an entrepreneur and was terrified of doing it because they’d lose their health insurance, is now able to do that too, and switch and take a chance on creating jobs and growing the overall economy. So there’s a lot of new choices that this will facilitate.”
At the same time, Mr. Furman said he doesn’t agree with the CBO’s numbers. He argues that agency analysts didn’t take into account lower health care costs and higher worker productivity that would create hundreds of thousands of jobs a year.
Republicans, though, used the jobs number to attack Senate Democrats seeking re-election in November.
“This is one of the perverse incentives in this terrible law. It actually encourages able-bodied people to not work,” said Sen. John Barrasso, Wyoming Republican. “We should be doing all that we can to increase labor force participation. The health care law actually pushes it in the opposite direction.”
Taking the budget as a whole, the CBO said Congress has made substantial headway on cutting spending and raising taxes, which will reduce the deficit to $514 billion this year and $478 billion in 2015.
But it will rise by 2016 and steadily grow to more than $1 trillion in 2022.
The CBO report said the economy isn’t rebounding as fast as is typical after a recession and that poor growth means less revenue for the Treasury. That means the cumulative deficit over the next decade will be $1 trillion more than projected last year.
National debt, which is the accumulation of annual deficits, is at its highest level since the aftermath of World War II. The CBO said debt held by the public will represent 80 percent of gross domestic product by 2024, the end of the budget window.
The report will give ammunition to those who argued that tax increases or spending cuts should have been delayed while the government pursued more economic stimulus over the past few years.
But the CBO suggested that the problems are more structural, given the aging U.S. population and women’s participation in the labor force.
The report said the labor market for the rest of this decade will recover more slowly than analysts predicted last year.
The analysts said that at the deepest part of the recession, GDP was 7.5 percent below the economy’s potential output. By the end of 2013, just half of that gap had been closed, meaning the economy still has plenty of room to improve.
“With output growing so slowly, payrolls have increased slowly as well — and the slack in the labor market that can be seen in the elevated unemployment rate and part of the reduction in the rate of labor force participation mirrors the gap between actual and potential GDP,” the CBO study said.