Reprinted from The Economic Policy Institute by Josh Bivens on January 31, 2017.
The Republican-led effort to repeal the Affordable Care Act (ACA) includes two large fiscal changes: a tax cut and a spending cut. Because the US economy still has some productive slack, these significant fiscal changes will affect the pace of economic growth. Essentially, this productive slack is caused by households, businesses, and governments that are still spending less than what the economy could produce if all resources (including workers) were fully employed. This shortfall in spending (or aggregate demand) is hence the current binding constraint on the economy’s growth rate. In this environment, the sudden withdrawal of spending from the economy from ACA repeal would add job loss to the loss of health and financial security for tens of millions of Americans.
This report provides a rough estimate of how the combination of tax cuts and spending cuts in the ACA repeal will affect employment in US states. Its main findings are:
- ACA repeal would cut federal spending nationwide by roughly $109 billion in 2019 and taxes by roughly $70 billion in 2019.
- The combination of tax cuts and spending cuts embedded in ACA repeal would reduce national job growth by almost 1.2 million in 2019, all else equal. That is because the spending cuts would hurt job growth more than the tax cuts would help it. …