Ex-CBO Chief: Obamacare's Work Disincentive ‘Exactly the Same’ As Welfare’s

February 19, 2014 - 5:49 PM

Douglas Holtz-Eakin

Douglas Holtz-Eakin, former director of the Congressional Budget Office (AP photo)

(CNSNews.com) --  There’s no difference between the disincentives to work found in the Affordable Care Act and welfare payments, says the former director of the Congressional Budget Office (CBO).

“It’s exactly the same thing,” Douglas Holtz-Eakin, now president of the American Action Forum (AAF), told CNSNews.com.

“Many low income workers will figure out that if they work more, they’ll have to give up their tax credits and some Obamacare subsidies. They’ll add up the benefits and conclude it’s not worth it to work another day or another shift,” the economist said.

Earlier this month, the current CBO director, Douglas Elmendorf, told members of Congress that Obamcare subsidies will make working less attractive for people on the lower end of the income scale "relative to what would have been the case in the absence of that Act."

“As a result, some people will choose not to work or will work less – thus substituting other activities for work,” a CBO report noted.

House Minority Leader Nancy Pelosi (D-Calif.) defended the health care law, which provides federal subsidies up to $7,000 to purchase taxpayer-funded health insurance, noting that one of its goals was to “give people life, a healthy life, liberty to pursue their happiness. And that liberty is to not be job-locked, but to follow their passion.”

“That’s crazy,” Holtz-Eakin said in response. “Honestly, it’s one thing if you choose to pursue your interests at your own expense, but that has nothing to do with this.” The loss of some 2.5 million people from the U.S.  labor force will have "a straightforward effect,” he said. “It will mean less productivity, a smaller national economy, and a smaller tax base.”

“The biggest impact will be on young people who cannot find work. This takes one more thing off the list of reasons why they should be out there looking for jobs,” Holtz-Eakin added.

In a 2013 study, researchers at the Cato Institute found that despite the 1996 welfare reform legislation, “welfare benefits continue to outpace the income that most recipients can expect to earn from an entry-level job…The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states.”

However, even though welfare recipients may be better off financially in the short term, they become dependent on government and tend to fall far behind their working peers in the long run. Will Obamacare continue this trend? CNSNews.com asked the former CBO chief.

“It’s a concern,” Holtz-Eakin replied. “There’s a lot of evidence, through several recessions, that some of those who are out of work don’t recover. Obamacare subsidies make it easier for them to never get back into the labor force.”

And that certainly “doesn’t help” the problem of income inequality, he added, because “the dividing line between the poor and not poor is a job. The poverty level of people with jobs is about 7 percent; it’s three times that for the unemployed. A job is the best anti-poor policy, but this goes the other way.”

CNSNews.com asked the former CBO chief if he was surprised that President Obama is attempting to reduce “income inequality” at the same time his signature domestic health care policy and his efforts to raise the minimum wage are increasing the disincentives to work.

“Not a bit,” he replied. “It’s clear they did not think about the economic implications when they passed [Obamacare].  The health sector is one sixth of the U.S. economy, and health insurance is a big part of employee benefits.”