CBO director: Stimulus and deficit-cutting measures don’t clash

More government spending to boost a still-recovering economy doesn’t clash with a long-term goal of cutting deficits, Congress’s official budget scorekeeper said Wednesday.

“There is no intrinsic contradiction between providing additional fiscal stimulus today, when unemployment is high and many factories and offices are underused, and imposing fiscal restraint several years from now when output and employment will probably be closer to their potential,” said Congressional Budget Office Director Douglas Elmendorf.

{mosads}Elmendorf made his remarks during a public hearing of the White House fiscal commission.

He cautioned that he wasn’t advising Congress on what approach to take, but said it was “important to understand difference between the effects of government borrowing for a limited period when the economy is weak and [borrowing] for indefinite periods when the economy has recovered.”

Elmendorf’s remarks give credence to Democratic arguments for stimulus spending. President Barack Obama and Democratic leaders in Congress have said extensions of unemployment benefits and fiscal aid for states to retain public workers would help the economy even though they could add to the $13.1 trillion debt.

Their efforts to enact those extensions have been stymied by Republicans, especially in the Senate, who have insisted that those measures be paid for.

Though Elmendorf said that immediate moves to slash spending or raise taxes to cut deficits would likely slow the economy, putting a deficit-cutting plan in place now and acting on it in the future could provide support to a still-uncertain economy.

“Larger deficits for sustained periods have significant economic consequences,” Elmendorf said. “Even temporary deficits produce increases in debt that have harmful consequences over the long run … unless government takes steps later to retire that debt.”

Elmendorf was testifying before the commission on the CBO’s latest long-term budget outlook. The report suggested that the federal debt would hit a level equal to 62 percent of gross domestic product this year, which would be the highest level since the end of World War II.

Under the current budget, that level would grow to nearly 80 percent at the end of the decade, CBO said. Under an alternative scenario in which expiring popular policies were extended, that debt would grow to 87 percent by 2020 and triple by 2035. According to that scenario, lawmakers will extend expiring Bush-era tax cuts and Medicare doctor payments, prevent the alternative minimum tax from hitting the middle class and block cost-saving measures in the Democrats’ healthcare law.

Congress has extended those tax provisions and doctor payments in the past, and analysts have been skeptical that lawmakers would stick to the Democrats’ health cost-saving measures, Elmendorf said.

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