Federal Reserve Chairman Explains Why Looming Budget Cuts Could Be Bad News For Deficit Reduction

Budget cuts under the so-called “sequester” will go into effect on Friday. Independent estimates shows that the cuts will cost anywhere from 700,000 to 750,000 jobs. And the end result may be very little deficit reduction as well, as a more depressed economy will not produce as much in the way of revenue, as economist Adam Hersh explained.

During a hearing before the House Financial Services Committee today, Federal Reserve Chairman Ben Bernanke patiently tried to explain this to Rep. Sean Duffy (R-WI), who wasn’t having it:

DUFFY: Instead of encouraging responsibility, you come in and say “listen to cut 2 percent of our budget, you can’t do it. It’s going to have a great impact on our economy.” Mr. Chairman that doesn’t make sense to me.

BERNANKE: Well, I think most economists, including the CBO, would say this will cost a lot of jobs in the short run. And you can achieve the same results with longer-term programs. [...]

DUFFY: So then are you here telling us if we cut $85 billion in a more reflective way — in the bad spending that I just referenced — you would support it? It’s a good idea if we’re not doing it by way of the sequester, but we had a little more reflective analysis on the $85 billion.

BERNANKE: It would be better.

DUFFY: So is it better or you agree with us that we should actually reduce spending?

BERNANKE: I’m still concerned about the short-term impact on jobs. And you don’t get as much benefit as you think, because if you slow the economy that hurts your revenues and that means your deficit reduction is not as big as you think it is.

Watch:

For evidence of what Bernanke is talking about, one needs to look no further than Europe, where austerity — rather than sparking a recovery — has led to weak growth, high unemployment, and yes, more debt. In fact, the EU’s debt “was barely changed at 90 percent of gross domestic product in the third quarter of 2012 compared with 89.9 percent for three months earlier…It was up from 86.8 percent of GDP a year earlier,” even after the continent embraced deep spending cuts and reforms.

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Averting the Sequester and Finding a Balanced Approach to Deficit Reduction

The White House

Office of the Press Secretary

WASHINGTON, DC—In this week’s address, President Obama urged Congress to act to avoid a series of harmful and automatic cuts—called a sequester—from going into effect that would hurt our economy and the middle class and threaten thousands of American jobs.  The President urged Congress to find a balanced approach to deficit reduction that makes investments in areas that help us grow and cuts what we don’t need.

The audio of the address and video of the address will be available online at www.whitehouse.gov at 6:00 a.m. ET, Saturday, February 9, 2013.

Remarks of President Barack Obama
As Prepared for Delivery
The White House
February 9, 2013

Hi, everybody.  Over the last few years, Democrats and Republicans have come together and cut our deficit by more than $2.5 trillion through a balanced mix of spending cuts and higher tax rates for the wealthiest Americans.  That’s more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties say we need to stabilize our debt. 

I believe we can finish the job the same way we’ve started it – with a balanced mix of more spending cuts and more tax reform.  And the overwhelming majority of the American people agree – both Democrats and Republicans.  

Now, my preference – and the preference of many Members of Congress – is to do that in a balanced, comprehensive way, by making sensible changes to entitlement programs and reforming our tax code.  As we speak, both the House and Senate are working towards budget proposals that I hope will lay out this kind of balanced path going forward. 

But the budget process takes time.  And right now, if Congress doesn’t act by March 1st, a series of harmful, automatic cuts to job-creating investments and defense spending – also known as the sequester – are scheduled to take effect.  And the result could be a huge blow to middle-class families and our economy as a whole.

If the sequester is allowed to go forward, thousands of Americans who work in fields like national security, education or clean energy are likely to be laid off.  Firefighters and food inspectors could also find themselves out of work – leaving our communities vulnerable.  Programs like Head Start would be cut, and lifesaving research into diseases like cancer and Alzheimer’s could be scaled back.  Small businesses could be prevented from getting the resources and support they need to keep their doors open.  People with disabilities who are waiting for their benefits could be forced to wait even longer.  All our economic progress could be put at risk.

And then there’s the impact on our military readiness.  Already, the threat of deep cuts has forced the Navy to delay an aircraft carrier that was supposed to deploy to the Persian Gulf.  As our military leaders have made clear, changes like this affect our ability to respond to threats in an unstable part of the world.  And we will be forced to make even more tough decisions in the weeks ahead if Congress fails to act.

The good news is, there’s another option.  Two months ago, we faced a similar deadline, and instead of making deep, indiscriminate cuts that would have cost us jobs and slowed down our recovery, Democrats and Republicans came together and made responsible cuts and manageable changes to our tax code that will bring down our deficit.  This time, Congress should pass a similar set of balanced cuts and close more tax loopholes until they can find a way to replace the sequester with a smarter, longer-term solution. 

Right now, most Members of Congress – including many Republicans – don’t think it’s a good idea to put thousands of jobs at risk and do unnecessary damage to our economy.  And yet the current Republican plan puts the burden of avoiding those cuts mainly on seniors and middle-class families.  They would rather ask more from the vast majority of Americans and put our recovery at risk than close even a single tax loophole that benefits the wealthy.

Over the last few years, we’ve made good progress towards reducing our deficit in a balanced way.  There’s no reason we can’t keep chipping away at this problem.  And there’s certainly no reason that middle-class families and small businesses should suffer just because Washington couldn’t come together and eliminate a few special interest tax loopholes, or government programs that just don’t work.  At a time when economists and business leaders from across the spectrum have said that our economy is poised for progress, we shouldn’t allow self-inflicted wounds to put that progress in jeopardy.

So my message to Congress is this: let’s keep working together to solve this problem.  And let’s give our workers and our businesses the support they need to grow and thrive.  Thanks, and have a great weekend.

Check out all the ways you can get involved with President Obama's State of the Union Address.

With less than three weeks before devastating, across the board cuts - the so-called "sequester" - are slated to hit, affecting our national security, job creation and economic growth, we must make sure we are having a debate over how to deal with these looming deadlines that is based on facts- not myths being spread by some Congressional Republicans who would rather see these cuts hit than ask the wealthiest and big corporations to pay a little bit more.

President Obama urges Congress to act to avoid a series of harmful and automatic cuts—called a sequester—from going into effect that would hurt our economy and the middle class and threaten thousands of American jobs.

view all related blog posts

View the original article here

Weekly Address: Averting the Sequester and Finding a Balanced Approach to Deficit Reduction

The White House

Office of the Press Secretary

Hi, everybody. Over the last few years, Democrats and Republicans have come together and cut our deficit by more than $2.5 trillion through a balanced mix of spending cuts and higher tax rates for the wealthiest Americans. That’s more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties say we need to stabilize our debt. 

I believe we can finish the job the same way we’ve started it – with a balanced mix of more spending cuts and more tax reform. And the overwhelming majority of the American people agree – both Democrats and Republicans.

Now, my preference – and the preference of many Members of Congress – is to do that in a balanced, comprehensive way, by making sensible changes to entitlement programs and reforming our tax code. As we speak, both the House and Senate are working towards budget proposals that I hope will lay out this kind of balanced path going forward. 

But the budget process takes time. And right now, if Congress doesn’t act by March 1, a series of harmful, automatic cuts to job-creating investments and defense spending – also known as the sequester – are scheduled to take effect. And the result could be a huge blow to middle-class families and our economy as a whole.

If the sequester is allowed to go forward, thousands of Americans who work in fields like national security, education or clean energy are likely to be laid off. Firefighters and food inspectors could also find themselves out of work – leaving our communities vulnerable. Programs like Head Start would be cut, and lifesaving research into diseases like cancer and Alzheimer’s could be scaled back. Small businesses could be prevented from getting the resources and support they need to keep their doors open. People with disabilities who are waiting for their benefits could be forced to wait even longer. All our economic progress could be put at risk.

And then there’s the impact on our military readiness. Already, the threat of deep cuts has forced the Navy to delay an aircraft carrier that was supposed to deploy to the Persian Gulf. As our military leaders have made clear, changes like this affect our ability to respond to threats in an unstable part of the world. And we will be forced to make even more tough decisions in the weeks ahead if Congress fails to act.

The good news is, there’s another option. Two months ago, we faced a similar deadline, and instead of making deep, indiscriminate cuts that would have cost us jobs and slowed down our recovery, Democrats and Republicans came together and made responsible cuts and manageable changes to our tax code that will bring down our deficit. This time, Congress should pass a similar set of balanced cuts and close more tax loopholes until they can find a way to replace the sequester with a smarter, longer-term solution. 

Right now, most Members of Congress – including many Republicans – don’t think it’s a good idea to put thousands of jobs at risk and do unnecessary damage to our economy. And yet the current Republican plan puts the burden of avoiding those cuts mainly on seniors and middle-class families. They would rather ask more from the vast majority of Americans and put our recovery at risk than close even a single tax loophole that benefits the wealthy.

Over the last few years, we’ve made good progress towards reducing our deficit in a balanced way. There’s no reason we can’t keep chipping away at this problem. And there’s certainly no reason that middle-class families and small businesses should suffer just because Washington couldn’t come together and eliminate a few special interest tax loopholes, or government programs that just don’t work. At a time when economists and business leaders from across the spectrum have said that our economy is poised for progress, we shouldn’t allow self-inflicted wounds to put that progress in jeopardy.

So my message to Congress is this: let’s keep working together to solve this problem. And let’s give our workers and our businesses the support they need to grow and thrive. Thanks, and have a great weekend.

President Obama urges Congress to act to avoid a series of harmful and automatic cuts—called a sequester—from going into effect that would hurt our economy and the middle class and threaten thousands of American jobs.

Here's quick glimpse at what happened this week on WhiteHouse.gov.

Vice President Biden's Chief of Staff Bruce Reed sat down with us to give us a quick update on the work the President and Vice President have been doing since the President released his plan to reduce gun violence.

view all related blog posts

View the original article here

For Balanced Deficit Reduction, The Next Budget Deal Must Be 90 Percent Tax Revenue

Between the recent fiscal cliff deal, the Budget Control Act of 2011, and the federal budget negotiation of Spring 2011, the United States has succeeded in reducing its deficits for the next decade by over $2 trillion. The first brought in over $600 billion in new revenue, while the two budget deals cut over $1.5 trillion in spending, including reduced interest payments on a smaller debt.

As both the Center for American Progress and the Center for Budget and Policy Priorities have noted, the end result of all that leaves the country’s total deficit-reduction efforts grossly tilted towards the GOP’s priorities: spending cuts dominate new tax revenue by approximately three to one.

The CBPP’s report also fleshed out the implications of this imbalance going forward. In order to stabilize the debt for the next decade, another $1.2 trillion in deficit reduction is needed, accompanied by about $200 billion in additional interest savings. The CBPP’s numbers also show that for the final result to be a true 50-50 balance between spending cuts and tax increases, nearly 90 percent of the additional $1.2 trillion must come from revenue increases:

[E]ven if the additional savings [from $1.2 trillion in additional deficit reduction] were divided evenly between revenue increases and program cuts, the total deficit reduction under the three deficit-reduction packages would be heavily weighted toward budget cuts: 64 percent budget cuts to 36 percent revenue increases, or a ratio of nearly 2 to 1. To achieve a 50-50 split for the combined deficit-reduction packages, policymakers would have to obtain nearly 90 percent of the additional $1.2 trillion in savings from revenue increases.

In contrast, if all of the additional savings were to come from program cuts, as Republican congressional leaders have suggested, the overall ratio would be still more skewed, with more than four-fifths coming on the spending side — a ratio of nearly 5 to 1.

So the Democrats’ proposal that further deficit reduction include $1 trillion in additional revenue — which arguably denotes the far-left flank of the debate at this point — comes the closest to meeting the 50-50 test. Meanwhile, Republicans’ insistence that “the tax issue is finished” would push the country towards an even more wildly skewed result. America remains as far as ever from the ostensibly bipartisan goal of balanced deficit reduction.

View the original article here

Since 2011, Three-Quarters Of Deficit Reduction Has Been Via Spending Cuts

Since passage of the deal to avert the so-called “fiscal cliff,” Congressional Republicans have attempted to portray it as the “last word” on taxes going forward. “The tax issue is behind us,” said Senate Minority Leader Mitch McConnell (R-KY).

Democrats, meanwhile, have said that any forthcoming budget deal should be composed of equal parts revenue and spending cuts. But even doing that would mean the bulk of deficit reduction will have been achieved through spending cuts, because, as the Center for American Progress’ Michael Linden and Michael Ettlinger show, three-quarters of deficit reduction since 2011 has been due to spending cuts:

Since the start of fiscal year 2011, President Barack Obama has signed into law approximately $2.4 trillion of deficit reduction for the years 2013 through 2022. Nearly three-quarters of that deficit reduction is in the form of spending cuts, while the remaining one-quarter comes from revenue increases. As a result of that deficit reduction, the projected rise in debt levels from today through 2022 has decreased by nearly 10 full percentage points of gross domestic product. In fact, under today’s policies, debt levels in 2022—as a share of GDP—will be only slightly higher than they are expected to be by the end of next year.

Here’s a timeline of accumulating deficit reduction, with spending cuts in red and revenue increases in blue:

When McConnell tried to claim on ABC’s This Week that revenue was off the table, anchor George Stephanopoulos wasn’t having it. And the numbers show he was exactly right.

View the original article here