Repeal Of The New Heathcare Law Will Not Increase The Deficit, Just As Its Passage Did Not Reduce The Deficit, Despite CBO's Opinion To The Contrary

Despite CBO's projections to the contrary, repeal of Obamacare will not increase the deficit, just as the original enactment of the new healthcare legislation did not reduce the deficit.

CBO projected expected revenues and costs of the new healthcare legislation under the assumption of a static economy, and it will use the same methodology to project the revenues and expenses of a repeal of Obamacare.

CBO does not model tax revenues. It uses the projections of the Joint Committee on Taxation (JCT). JCT uses a static model of the economy when modeling the effects of tax rates on tax revenue. JCT assumes individuals and corporations minimize taxes and modify behavior, but tax law changes do not change the projected growth rates of the US economy.

From page 19 of "Inside the JCT Revenue Estimating Process" JCT states:

"Macroeconomic" Revenue Estimates

• standard JCT estimate incorporates behavioral responses in projecting tax revenues, but assumes that these tax and behavioral changes do not in turn ‘move the needle' of the entire US economy
• This is termed the "Fixed GNP Constraint"
• Generally assumes that total labor supply and investment are fixed
• For example, we assume that a surtax on labor income will not cause taxpayers to retire early, or simply to work less hard

Unrealistically, CBO, in relying on JCT tax revenue estimates, uses estimates that the new taxes and new mandated employer costs in the new healthcare law do not change GDP growth, consumption, workforce participation rates, tax revenue estimates, or capital investment amounts. All of which will probably be lower under the new healthcare law due to increased taxes, penalties, and increased employer costs of employees.

When macro-economic economists model tax or price changes, they use more realistic models like dynamic stochastic general equilibrium (DSGE) models and not static models. DSGE models attempt to accurately reflect behavioral changes caused by tax, cost and price changes. DSGE models of the new healthcare reform law would show that the new law slows economic growth, slows employment growth, and that tax revenue will be lower than expected.

In other words, a more accurate macro-economic model of the US economy would show that repeal of the new healthcare law would increase GDP growth, increase capital investment, increase workforce participation, increase consumption and increase tax revenues. Repeal would not increase the deficit and may actually reduce the deficit more than the new healthcare law due to stronger economic growth after repeal.

See my two earlier posts about the shortcomings of CBO deficit estimates when there are tax changes:

"ObamaCare Highlights Weaknesses Of CBO Cost Estimating Process"

"A Bias Towards Tax Increases In NY Times, CBO, JTC Budget Calculators"