President Obama bludgeoned Obamacare through Congress on the claim, backed by the Congressional Budget Office, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As discuss in a new book available this week from HarperCollins, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and other new numbers indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over the next 20 years, and possibly more.
One major factor dramatically increasing the resulting deficits under Obamacare is that the tax increases won’t raise nearly the revenues that CBO projects. Considering as well President Obama’s general tax increases now scheduled for 2013, the capital gains tax rate would increase by close to 60% that year, with the expiration of the Bush tax cuts and the Medicare payroll tax soon applying to capital gains as well. But over the last 40 years, every time the capital gains tax rate has been increased, revenues have declined.
Similarly, the tax rate on dividends would nearly triple in 2013, due again to the expiration of the Bush tax cuts and the application of the Medicare payroll tax to dividends as well. The last time dividend taxes were that high, corporate dividend payments were greatly reduced. Corporations just kept the money internally for corporate investment. Corporate earnings are already subject to the 35% corporate income tax rate. So revenues from the tax on dividends will decline sharply as well, exactly the opposite of what happened when President Bush cut the tax rate on dividends in 2003. CBO, of course, has a horrid record of wildly failing to estimate the revenue effects of tax changes relating to capital gains and corporate dividends in particular.
Moreover, as employers drop employee coverage under Obamacare, revenues from the new taxes on health insurance will fall short as well. Expect companies to cut back on high value, “Cadillac,” health insurance plans in particular, taxed heavily under Obamacare. To the extent that employers respond to the employer mandate by reducing hiring, or even laying off existing workers, that will cause a loss of income tax and payroll tax revenues, further adding to the deficit. Indeed, the employer mandate seems to have had such an effect even before it has become effective.