I’ll start by giving our president the benefit of the doubt — that he is actually hoping to make America a better place with his plans, his policies, his ideology and his actions. But, before I go too far down that road, I must question what his idea of “a better place” means, and how it actually works out in practice. I fear the answer is either “not so good” or “terrible.”
A few weeks ago I wrote about the sub-30-hour week, and how it will change the working life of millions of Americans. As thousands of employers hold employees below 30 hours to avoid Obamacare’s costs and red tape, there are several unintended consequences of Obamacare that President Obama may have overlooked.
Sub-30-Hour Workweek: More Jobs, Less Pay
The first unintended consequence is that instead of helping the middle class, this will hurt them. Everyone whose 40-hour week becomes a sub-30-hour week will take a de-facto 25 percent cut in pay. Sure, more people will be hired to make up for the hours of work lost, but they too will only earn about 70 percent of the old full-time pay. And, that was not too lucrative a job to begin with.
The second unintended consequence is that all of those people will be dumped from employer paid health care into the state exchanges or whatever federal replacement plan develops as more and more states opt out of the exchanges under Obamacare. This will shift costs from the employer to the government, further increasing the federal deficit.
The third unintended consequence is that American middle-class workers now must replace the lost 25-30 percent of pay (due to the sub-30-hour work week). These folks all need to find another (second or third) job with all the difficulty that involves. Finding a second job is tough enough, then balancing two job schedules with personal life is harder yet. There are more unintended consequences, but those three are bad enough.
Instead of helping the middle class, the unintended consequences of the president’s plan has hurt them.
“Tax The Rich” Slows Growth
The president has insistently made increasing taxes on the “rich” a centerpiece of his economic plans. He now has the power and leverage to do that. Then what? That money collected in taxes on the wealthy will be spent (or wasted) in Washington. That leaves less money to be invested, and investments are what lead to new jobs and economic growth. The government creates no new wealth. All new wealth is created in the private sector and the government simply takes part of that wealth and redistributes it.
Capital gains taxes will also increase, which slows the velocity of money moving through the economy. Instead of selling a profitable investment and finding a new one, investors hold the ones they have longer to avoid the higher capital gains taxes. Both result in less tax revenue. Slowing the velocity of money moving through the economy results in less tax revenue for the government. So do higher capital gains taxes. This unintended consequence is exactly the opposite of why the taxes were increased. Watch it happen.
Next, economic growth will slow further, as will job creation, leading to less revenue from growth, still lower tax revenue and bigger deficits (instead of smaller ones).
The next Obama plan that will backfire is that the unrealizable projections on new tax revenue discussed above will be spent, but not materialize, thus adding to the deficit. This will threaten yet another downgrade in America’s debt rating.
The Wall Street Effect
The final unintended consequence is that the combined effects of these misguided policies eventually reverberate through the economy and impact Wall Street. Stocks have been climbing due to companies saving money and gaining sales outside the USA. Those two sources of earnings are about used up. Savings have been wrung out of most companies and further ones will cause new layoffs — another unintended consequence of these flawed plans.
Sales outside the USA are slowing now. There is a recession in Europe, and China is slowing down. In fact, half of the largest 40 US companies have publicly stated plans to curtail capital spending in 2013. Lower capital investment translates into fewer jobs.
Are you getting the theme here? Everything being done by the president and his administration to rejuvenate the economy and help the middle class is likely to have just the opposite effect. Of course neither he nor his staff want to hear this. We’ll all have to just wait, watch it unfold, then listen for excuses and finger of blame being pointed everywhere but where it belongs.
Unintended consequences are scary when the decision makers simply don’t understand what caused them. And, that is the way it is as we enter 2013. Welcome to the slow or no growth America.
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- Obama’s leadership failures and the low information voter (thebrennerbrief.com)
- Is This Obamacare Consequence Intended Or Unintended? (freedomoutpost.com)
- Unintended Consequence of ObamaCare: Patient Mills (thebrennerbrief.com)
- The law of unintended consequences (babalublog.com)
- Reason TV Replay: Great Moments in Unintended Consequences, From Ethanol to Obamacare (reason.com)