How Have Barack Obama’s Policies Affected Economic Growth?

Ryan Bhandari  |

President Obama’s economic policies have been controversial and politically divisive, to say the least. But just because they have managed to engender tremendous amounts of criticism from the Right does not mean all of that criticism is valid or backed by economic research – nor does it mean that none of it is. Some of the criticisms President Obama has faced certainly may be valid, but it’s important to remove politics from the equation when attempting to accurately determine how much this president’s policies have catalyzed (or hindered) economic growth.

There are several pieces of major legislation passed by Barack Obama that have affected the economy in significant ways. This article will analyze the ways that three of these pieces of legislation has expanded or hindered economic growth.

The Effect of the American Recovery and Investment Act

More commonly referred to as the “Stimulus Package,” the 2009 American Recovery and Investment Act is perhaps the most significant piece of economic legislation that’s been signed into law by Barack Obama.

The bill itself injected $832 billioninto the economy through a combination of tax breaks and spending policies. The stimulus is technically being implemented over ten years, but 92% was budgeted for the first three fiscal years.

The question of whether it actually worked is hotly contested. Republicans often assert that the stimulus package didn’t work because the economy contracted by 2.8% in 2009, and the unemployment rate increased from 7.8% in January to 9.9% in December 2009.

This is a simplistic and deceiving talking point though, because it fails to address how fast the economy would have contracted had it not been for the stimulus package. Even with the stimulus package, the CBO estimatedthat the economy would contract by 3% in 2009. Therefore, one could argue that the stimulus exceeded expectations, because the economy contracted by 2.8%. In terms of employment, the CBO also estimates that the stimulus lowered the unemployment rate between 0.7 and 1.8 percentage points. Similarly, it also increased employment positions by between 1.4 million and 3.3 million.

It’s relatively clear by the standards of the nonpartisan CBO – the stimulus package succeeded in catalyzing economic growth and employment. However, there is still the question as to whether or not the package was “worth it.” It did increase the deficit, and there is some skepticism in the economic community on the question of whether or not it justifies its cost. A poll conducted by the Chicago Booth School of Economicsconcluded that 46% of economists agree that the benefits of the stimulus package outweighed the costs, while 27% said they weren’t sure and 12% were certain that the costs outweighed the benefits.

American Taxpayer Relief Act of 2012

In regard to taxation, Obama has passed two major policies. First, he extended the Bush tax cuts for all families in the United States at the end of 2010 for two years. The Republicans had just won control of the House of Representatives in the 2010 midterm election and were in a position of political power to push President Obama to extend tax cuts for the wealthy.

At the end of 2012, after winning re-election, he had the political clout to push the Republican House of Representatives to accept tax hikes for individuals making over $400,000 a year and families earning $450,000 a year. The top income bracket was raised from 35% to 39.6% for these families. The Bush tax cuts were made permanent though for all other income brackets. The capital gains tax was also increased from 15% to 20%.

There was a lot of fear on the Right that these tax cuts would destroy the already sluggish economic recovery. This fear proved unfounded. The CBO projected that growth would slow down in 2013 because of the tax hikes and spending cuts that resulted from sequestration. The CBO predictedthat economic growth would only be 1.4% and that unemployment would stay at 7.9% by the end of the year. In reality, the economy grew by 2.2% in 2013 and the unemployment rate decreased from 8% at the beginning of the year to 6.7% by the end of the year.

So how have Obama’s tax policies affected economic growth? It’s possible to make a case that they helped spur economic growth based on how much economic growth exceeded expectations in 2013. However, macroeconomic theory dictates that tax increases and spending cuts are not expansionary measures. The impressive growth numbers of 2013 are likely the result of some other exogenous factors. Overall then, the American Taxpayer Relief Act seems to have not had much of an effect at all on economic growth.

Affordable Care Act

The last piece of legislation worth examining that was passed under Barack Obama is the Affordable Care Act. Although, this legislation is not directly related to economic policy, it continues to impact the economy.

In February of 2014, the CBO released a reportdetailing predictions on how the ACA would directly affect the economy. Because of some of the provisions of the law, the CBO projects that the ACA will reduce the total number of hours worked in the economy. They estimate the reduction to be somewhere between 1.5% and 2% between 2017 and 2024. People will start to work less. They mostly attribute this to the subsidies for health insurance purchased through exchanges, the expansion of eligibility for Medicaid, and the new taxes imposed on labor income.

The CBO predicts the ACA will both stimulate demand for labor and decrease demand for labor. The employer penalty that will be assessed to all employers with 50 or more employees who fail to provide health insurance will decrease demand for labor. The CBO projects that this will cause employers to reduce the size of their workforce or reduce some full-time positions to part-time positions. However, there are other provisions that will increase the demand for goods and services. The expansion of Medicaid coverage will increase the demand for health care services and also increase the amount of disposable income in the pockets of low-income families.

Overall, the CBO estimates that the ACA will boost the demand for goods and services. The positive effects of the Medicaid expansion outweigh the negative effects of the employer mandate.

So Have Obama’s Policies Been Positive for the Economy or Not?

Barack Obama’s policies have generally been good for the economy, but could have been a lot better. The 2009 stimulus package in particular missed a great opportunity. Had the package focused more on government projects and infrastructure spending as opposed to tax rebates that did little to stimulate the economy (because most of that money went to paying down personal debts incurred after the market crashed), the economy may have seen better growth in 2009, and perhaps our degraded infrastructure would be in better shape than it is now.

The tax hikes at the end of 2012 didn’t have a negative effect on the economy, but they probably didn’t have a positive effect either. The tax hikes, along with automatic sequestration, did help curb the federal deficit all the way down to 2.4% last year, but at a time when the economy was still in recovery, it might not have been the right move.

The Affordable Care Act has had positive and negative effects on the economy. It will help spur demand for goods and services in the future, but will also reduce the supply of the labor to the market place and decrease overall productivity…supposedly. The true effects of the ACA on the economy – and the long-term results of Obama’s policies in general – remain to be seen.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:



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