In 2014, the stock market reached record highs, GDP continued to grow, and the unemployment rate declined. The New Year offers many challenges and opportunities for U.S. policymakers to speed economic growth. Here are three priorities to help the economy improve on 2014’s performance.
End the Affordable Care Act’s employer mandate
Unlike repealing the Affordable Care Act, ending the employer mandate has bipartisan support. The center-left Urban Institute advocates eliminating the employer mandate, which is only projected to increase the number of insured by tiny fractions of one percent (0.0007 percent). The additional number insured, 200,000, and the $4.3 billion the IRS is expected to collect annually in employer fines are not worth the disincentives to hiring.
President Obama understands the negative employment effects of the employer mandate. Businesses with over 49 full-time equivalent employees were originally supposed to offer insurance plans that met government requirements by January 1, 2014, but the president has delayed the mandate twice.
As the law currently stands, employers with over 100 full-time equivalent employees who do not offer an ACA-compliant will owe an annual penalty of $2,000 per full-time worker beginning in 2015. Employers with 50 to 100 full-time equivalent workers will owe the fine beginning in 2016. Once the full mandate goes into effect, growing from 49 to 50 full-time workers will cost a business an additional $40,000 (the first 30 workers are exempt). Since the first 30 full-time workers are exempt and employers do not have to offer healthcare to part-time workers, employers can avoid penalties if they keep 30 full-time workers and expand with only part-time workers.
This penalty is already discouraging hiring, especially of low-skill full-time employees, as successful businesses plan years into the future. Delays have not helped to calm businesses’ unease over expanding, and full repeal of the mandate would bring some much-needed certainty.
Increasing the number of insured was the original purpose of the Affordable Care Act, not the major disruption in labor markets that has ensued. With labor force participation at its lowest point since the 1970s, it is unwise to continue policies that provide few benefits while making it more costly to hire.
Lift the crude oil export ban
In 2014, the crude oil export ban finally received the negative attention it deserves. This antiquated law makes it is illegal to export U.S. crude oil without special permission from the Bureau of Industry and Security. With the exception of exports to Canada, permission is rarely granted. In a country that is in the midst of groundbreaking free trade negotiations and an energy renaissance, the existence of the protectionist crude oil export ban makes little sense—especially when it is perfectly legal to export refined oil.
Crude oil exports are only allowed if they are found to be "consistent with the national interest and the purposes of the Energy Policy and Conservation Act." This standard is painfully vague, and it is impossible for a few unelected bureaucrats at an obscure government agency to determine what export levels are consistent with U.S. interests.
This relic of the 1970s was conceived to protect domestic oil reserves and ensure America was not at the mercy of geopolitical foes. While other remnants of the oil embargo and ensuing crisis faded, such as the 55 mile per hour national speed limit and gasoline price controls, the oil export ban has proven difficult to end.
The outlook for American energy is far different from the 1970s. Nonproducing reserves of crude oil have rapidly increased over the past five years. In 2013, the Energy Information Administration reported 13.2 billion barrels of identified, but nonproducing reserves—a 144 percent increase from 2008, and a 280 percent increase from 1996. Limits on where this oil can be refined due to the export ban have led crude production to fall far short of the increase in identified reserves. From 1996 to 2013, crude oil production only rose by 15 percent—one twentieth of the increase in identified, nonproducing reserves.
Refiners, not consumers, stand to lose if the crude oil export ban were ended. Refineries are able to buy U.S. crude at discount and then sell refined oil on the international market, as there is no ban on refined oil exports.
Consumers would not be made worse off if the ban were ended because, though the price of American crude oil would likely rise, this increase would be offset by falling profit margins for oil refineries—leaving the price consumer pay at the pump relatively unchanged.
Allow interest rates to normalize
Even though the Federal Reserve has ended its massive bond purchases, interest rates remain near zero, where they have been held since late 2008. Low interest rates remain even though the economy has improved.
The Fed believes that if it can keep long-term interest rates low, business investment and consumer spending will increase and the economy will grow. However, the Federal Reserve is unable to singlehandedly create economic growth. Its role is instead to execute sound, consistent monetary policy, which provides the backdrop for a strong economy.
Historical evidence shows that interest rate increases during the early-to-middle stages of economic expansions do not endanger economic growth. As Boston College economics professor and Shadow Open Market Committee Member Peter Ireland argues, “These higher rates are nothing to be feared. To the contrary, they are a necessary component of a broader policy strategy designed to keep the economy growing along a stable path while maintaining the environment of slow-but-steady inflation that has served the country so well, going back more than a quarter century to the days of Paul Volcker’s Fed chairmanship.”
The Federal Reserve’s continued accommodative monetary policy is unlikely to increase GDP or employment growth. Instead, suppressing interest rates in times of increased and sustained economic growth increases the risk of inflation. It is time for the Federal Reserve to let interest rates rise with the improved economy.
The U.S. economic outlook for 2015 is generally promising, especially when compared to conditions in other countries. The Blue Chip Economic Consensus Forecasts report estimates that 2015 GDP growth will be 3.0 percent. Instead of encouraging complacency, this positive forecast should motivate policymakers to pursue pro-growth reforms. Ending the employer mandate, lifting the crude oil export ban, and allowing interest rates to normalize would help make 2015 the year in which the U.S. economy starts to reach its true potential.
Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
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