A number of changes associated with the American Reinvestment and Recovery Act (the economic stimulus package passed after Obama was elected) resulted in greater after-tax benefits to being unemployed. These include exempting part of unemployment insurance benefits from federal income taxes and subsidizing health insurance costs for laid off workers. Unemployment benefits also were extended for up to 99 weeks. In addition, the federal government developed mortgage modification formulas for banks to use, which resulted in a bigger reduction in interest payments for those with lower incomes.
The combined effect of a more generous food stamp program, more generous benefits for unemployed workers and mortgage modification formulas is to offset a considerable percentage of the reduction in income from being unemployed. This results in less incentive to work. If less people work, less output is produced and real GDP grows more slowly.
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In addition to the policies described above, health care reform has also likely contributed to less employment and output in the economy. By requiring all firms employing more than 50 workers to provide health insurance coverage, the Affordable Care Act has discouraged some firms from hiring workers, while giving other firms an incentive to reduce hours or lay off workers.
Finally, uncertainty about the future direction of the economy has resulted in fixed investment that is only 93 percent as high as it was in 2006. This uncertainty likely stems from a combination of recent bailouts, huge and unsustainable government deficits, Federal Reserve monetary policy and growing government regulation such as Dodd-Frank and health care reform. Investment is what makes workers more productive thereby driving economic growth.
Although some of the policies responsible for slow growth began before Obama took office, he has expanded those policies and added new ones as well. It is necessary that those policies be reversed if the U.S. economy is going to again grow as rapidly as it did during most of the 2oth century. Such growth is vital both as a means to lift people out of poverty and to raise the revenue necessary to pay for Social Security and Medicare benefits to a growing population of retirees. Unfortunately, in the meantime, the lack of growth under Barack Obama during the last five years has been literally the worst for any president since World War II.
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