The CBO has a new report out predicting the effects of repealing the Affordable Care Act (ACA, aka Obamacare), and one item that has caught the eye of conservatives is the following passage:
According to the agencies’ estimates, from 2021 through 2025, a repeal would increase GDP by about 0.7 percent, on average—mostly by repealing provisions that, under current law, are expected to reduce the supply of labor.
What that means is that in each of those years, the CBO predicts the GDP will be higher by 0.7% in 2025 than it would have been without the repeal of the ACA, all other things being equal.
I have heard it compared, on Fox News, to the 2.x% something growth rate the economy currently has, suggesting the views should compare those two numbers and conclude that a 0.7% increase is significant. I have seen other people suggest that it means $1,400 extra in everyone’s pocket. Both of those are wrong and misleading.
But the 0.7% number is not a growth rate, it is how bigger the economy will be in 2021 through 2025 due to repeal.
Let’s compare the effects of an economy that is .7% larger to the current 2.x% growth rate, as Fox News suggested. Let’s say that the growth rate for the next years will be 2.5%. That means, in 10 years, the economy will be 28% larger than it is now. The 0.7% increase won’t even make it 29% larger than it is now.
Put another way, an economy that is 0.7% larger in 10 years means that repealing Obamacare will increase the growth rate by 0.07% (0.0006978, actually) each year — an almost invisible change that will almost certainly be washed away by other events.
When other people suggest that it will put $1400 extra in each person’s pocket, they are making two huge mistakes. The first is that they are confusing GDP and GDP per capita. If the population grows by 10% and the GDP grows by 10%, my “share” of the GDP is unchanged. That 0.7% of extra GDP will be split amongst a lot more people. But let’s say family income $100K a year. A 0.7% increase is $700. You need a family income of $200K for the 0.7% increase to give you $1400 extra, gross.
The second mistake is that just because the GDP per capita grows, it does not mean that I, personally, will get it. Average family income in the USA is unchanged over the past 15 years, so that extra 0.7% in the GDP will not find its way into your or my pockets (unless you’re a 1%er).
The reality is that 10 years is a long time, and a 0.7% change in GDP is too small of an effect to predict with any accuracy. It’s essentially 0. But what is not hard to predict with some accuracy is how many people on Medicaid will lose their insurance, or how many people will no longer be able to afford to buy insurance. Those numbers are staggering.
Even if you want to repeal the ACA for other reasons, the reality is that there is no meaningful increase in the economy you can use as an argument to support doing it.