The Economic legacy of the Obama administration

Barack Obama became the President of the US amid the worst recession since the Great Depression. He took over from President Bush following the sub-prime mortgage crisis, with the economy contracting during his first quarter in office. Thus, his legacy came to be defined by his post-recession economic policies. Supporters and proponents of what has come to be known as Obamanomics argue that as employment and GDP increased under his tenure, his legacy was successful. With this said, the US experienced the worst post-recession recovery, falling wages, excessive spending and rising taxes with the Democratic President at the helm; only when Obama took a neoliberal turn did the economic situation ameliorate. In this way, his legacy cannot be deemed a success given the poor economic situation for the majority of his time in office.

Taxation

One of the most successful policy decisions undertaken by Obama was to extend parts of the Bush tax-cuts in 2010. First introduced in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act, this bill reduced federal income, capital gains and estate taxes. The top marginal income tax bracket was slashed from 39.6% to 35% with all other tax brackets receiving a 3% reduction. The extension of the Bush tax cuts for the bottom four tax brackets boosted the post-recession economic recovery. Had taxation increased, GDP growth in the years following 2008 would’ve been slower. These reductions also shifted the tax burden towards higher earners. The top 10% of income earners in 2018 ($152k+) comprised over 71% of the total income tax paid with the top 1% accountable for 41%. This is an increase from the 38% of total income tax paid by the top 1% in 2013. Shifting the tax burden from the poor to the rich has both a moral and economic justification. It ensures that poorer Americans retain more of their income, which was the case following the partial extension of the Bush tax cuts, thus boosting aggregate demand and economic growth.

However, the failure to extend the Bush tax cuts for higher-income earners prolonged the economic recovery. Analysts at Deutsche Bank also warned the Obama administration that letting these tax reductions expire would greatly slow the post-recession recovery, however, the Democratic President still followed through with these tax increases. Due to the decrease in disposable income for these earners, there was reduced investment in the economy and thus decreased economic growth, job growth and wage stagnation followed. In 2009, the median household income was $53,285. By 2013, this figure had fallen to $51,939. At the same time, nearly 5.5 million more Americans are now in poverty since Obama took office. This shows a complete disaster on Obama’s part regarding the increases in income tax for higher earners, as this prolonged the post-recession recovery due to the decreased investment in the economy.

Spending

Given the dire economic situation that Obama inherited, it is only natural that he had to embark on various stimulus proposals to restore economic growth. In February 2009, one month after his inauguration, Obama passed the American Recovery and Reinvestment Act, an $831 billion stimulus package. This legislation increased government spending by $573 billion, with a large portion of these funds going towards infrastructure. However, the infrastructure spending and construction declined in the following years. The number of highway, bridge and street construction workers remained stagnant in the years following the bill’s passage. In 2010, 40% of Americans lived in states that spent less on highway infrastructure than in 2008. Thus it is clear that despite the excessive sums dedicated for highway construction through the American Recovery and Reinvestment Act, the number of infrastructure projects fell. This represents a waste of government funds, paid by taxpayers, that could’ve been more useful spending.

During Obama’s tenure, the national debt doubled from $10 in 2009 to $20 trillion by 2017. Between 2009 and 2012, the budget deficit exceeded $1 trillion. Whilst the decreased tax revenues following the Financial Crisis were inevitably going to create large deficits, the unnecessary increases to defence spending greatly contributed to the explosion in the national debt. Obama’s total defence spending over his eight years in office was $6 trillion. This figure was greater than the sum of the next ten highest countries’ defence spending combined during that period. Obama has little to show for this, with the Taliban gaining more ground in Afghanistan under his Presidency. Once again, the future taxpayers will be the ones to pay for this, with tax increases, spending cuts or most likely a combination of the two, to follow in coming years.

Ultimately, Obama’s economic policies have been a disaster for Americans. Falling household incomes, sluggish economic growth have especially hurt poorer Americans, exemplified by the rising poverty experienced during Obama’s years in office. Although tax reductions were made permanent for low-income Americans, the failure to reduce taxes across the board delayed the post-recession recovery, with the Obama administration ignoring the advice of established banks who made this clear. The stimulus plan passed within his first few months failed to improve infrastructure, as the number of construction projects fell despite the additional funding. The legacy of Obama is tenuous for these reasons, as his policies have had negative consequences for Americans.