Obama's Passive-Aggressive Agenda

Investor's Business Daily

Americans continue to oppose ObamaCare by wide margins and support its repeal. And yet voters are deeply divided over whether to give President Obama a second term, which would guarantee that his signature legislation is fully implemented.Obama has said little about what he would do with four more years. But simply being in the Oval Office through 2016 would mean sweeping policy changes, from spending to taxes to regulation.Chronic Condition:Likely voters nationwide favor repealing ObamaCare 54%-39%, according to the latest Rasmussen Reports survey of the issue. Ohio voters opposed the sweeping health law 47%-37% in to a recent SurveyUSA poll.But if voters in the critical swing state and across the country give Obama an electoral college majority, ObamaCare will come into force in 2014. It's that simple.Yes, many states may resist setting up health insurance exchanges or expanding Medicaid, but over time they will likely fall in line.

Yes, it will bust budgets. The $716 billion in promised Medicare cuts probably won't happen. The Obama administration's pre-election delay of Medicare Advantage curbs underscores that point. Down the road, provisions will cut insurance exchange subsidies automatically — but that will be hard to carry out.

ObamaCare also makes tax and budget reform much harder.

But once the program is entrenched, people likely will soon grow to view the taxpayer subsidies for health coverage as, well, an entitlement.

Just sit and let government grow: The president's last budget got zero votes in Congress, even from Democratic lawmakers.

Though required by law to do so, Senate Democrats haven't even proposed a budget in almost 3-1/2 years.

Obama isn't going to get big new spending initiatives through a GOP-led House (and possible GOP senate majority) in 2013. But he can just sit back and let ObamaCare kick in and let entitlement spending explode automatically.

Federal government spending is expected to rise to 24% of GDP by 2022, according to the Congressional Budget Office's alternative fiscal scenario — far above the post-war average of 20%.

Meanwhile, the debt-to-GDP would swell from 40.5% in 2008 and 72.8% in 2012 to 89.7% in 2022 according to this CBO forecast. By 2037, total debt would be triple the size of the economy, though a budget crisis would likely hit well before then.

In all likelihood, spending and deficits will be far higher over the next several years. The CBO forecast does assume some spending curbs don't happen while some (but not all) tax cuts are extended. But it continues to predict extremely bullish economic growth over the next several years, even though GDP grew at a tepid 1.7% annual rate in the first half of 2012.

The CBO also assumes that ObamaCare does not end up swelling deficits. Even if the law's Medicare cuts actually occur, it will be much harder to find more savings later to actually make entitlements sustainable. And if, say, Congress raises the Medicare eligibility age, that will push more people onto subsidized ObamaCare exchanges, reducing the budget savings elsewhere.

Every year of delay makes entitlement reform more difficult. Most reform proposals — including Paul Ryan's — exempt current beneficiaries and those ages 55 and older. Thus savings wouldn't really start for a decade or more.

Consider the Social Security's disability insurance trust fund. It's projected to run out in 2016, which will trigger an immediate 19% cut to current beneficiaries. Congress will face enormous pressure to prevent that, but it'll be too late to simply tweak eligibility or benefit rules. Higher taxes, bigger deficits or both will be required.Taxes will go up, a lot:A year-end fiscal cliff of major tax hikes threatens to push the U.S. back into recession at the start of the year.

Washington may push that back a few months. But if federal government spending heads to post-war highs as a share of the economy, then tax revenue will have to soar far above historical norms.

Even if Republicans control the White House and Congress and act boldly, merely curbing the entitlement spending explosion would be a slow, difficult process.

Taxes are likely to be part of an eventual fix — and not just on the rich.

But with Obama in office for another term, the federal spending path will be at a much higher trajectory. So taxes would have to go a lot higher.

Federal government revenue hit $2.44 trillion in fiscal 2012, according to preliminary CBO estimates. To equal 24% of GDP in FY 2012, federal revenue would have needed to be 52% higher to $3.73 trillion.

The increase alone would be $5,247 for every American over age 16 — and just 58.7% of them have a job.

ObamaCare imposes several taxes — including a Medicare surcharge and medical devices tax that kick in on Jan. 1. The law also makes pro-growth tax reform harder. Eliminating the employer health care tax write-off could help pay for lower marginal rates. But with ObamaCare in force, many people would simply shift from work-based coverage to the subsidized exchanges.

Keep in mind states' massive government pension and other retiree costs over the next few decades. They are likely to keep raising taxes and curbing other spending. So federal tax hikes will go on top of an added state squeeze.Massive regulation:Obama won't just rely on inertia to expand government in a second term. His administration also has a slew of new regulations in the works. Just 13 major new rules in the pipeline will impose $515 billion in costs, according to the National Federation of Independent Business.

That doesn't include massive regulations still being written for ObamaCare and the Dodd-Frank financial law. Dodd-Frank rules could eventually run to 30,000 pages, according to some estimates.

The EPA plans to issue major environmental regulations on a wide variety of fronts, from greenhouse gas emissions to natural gas fracking.

The Obama administration last year delayed a new smog rule, citing the job impact, but it will revisit the issue after the election. Several other big bureaucratic edicts have been held up temporarily but will return in a second term.

Slower economic growth:The U.S. recovery has been the weakest since World War II and has lost speed in 2012. Economic forecasts generally envision another year of sluggish growth — assuming a "fiscal cliff" or other shock doesn't trigger another recession. In any case, tax, spending and regulatory policy in an Obama second term means growth will be weaker than it otherwise would have been.

U.S. global competitiveness has declined for four straight years, from No. 1 in 2008 to No. 7 in the latest report by the World Economic Forum.

Higher taxes, more red tape and no meaningful entitlement reform create a cocktail of knowns (higher costs on business, consumers), known unknowns (costs will climb further down the road as fiscal policy is unsustainable) and unknown unknowns. Will the U.S. face a Greek-style spiral of debt, austerity and economic free-fall? This cocktail will suppress spending and investment.

ObamaCare is already spurring restaurant chains and many other employers with many lower-wage workers to study capping work hours at 30 hours per week to avoid the health law's provisions.

Sluggish economic growth will exacerbate America's fiscal crisis and make solutions that much harder. More important, a weak economy means that millions of Americans won't find work — especially good-paying jobs. That hits the bottom rung of the ladder most of all — the jobless rate for those without a high school diploma is 12% vs. 4.1% for college graduates.Follow Ed Carson on Twitter: @EdCarson1

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