CBO chief warns debt panel spending cuts could slow recovery

The director of the Congressional Budget Office on Tuesday painted a bleak picture of the nation’s fiscal future and warned the deficit-reduction supercommittee to be wary of the nation’s ailing economy while weighing deep spending cuts and tax increases.
Doug Elmendorf, the CBO chief, testified at the panel’s first official hearing as it seeks to meet its charge of finding $1.5 trillion in budget savings. His appearance comes as the panelists are considering how to incorporate remedies for the stalled economic recovery into its task.


Elmendorf’s message: to avoid slowing the economy even further, the deficit must get worse before it gets better.
“If policymakers wanted to achieve both a short-term economic boost and medium- and long-term fiscal sustainability,” Elmendorf said, the “most effective” policy would be “changes in taxes and spending that would widen the deficit now but narrow it later in the decade.”
He warned, however, that the approach would work best if future policy changes “were sufficiently specific and widely supported” so that individuals and businesses can believe “that the future fiscal restraint would truly take effect.”
Like other economic analysts, the CBO has downgraded its forecasts for economic recovery and job growth in the next year following disappointing reports in the last month. Elmendorf said that data received since the CBO’s most recent forecast in August “suggest that economic growth for the remainder of this year and next is likely to be weaker than the agency anticipated.” The agency now expects the country's gross domestic product to grow by 1.5 percent in 2011 and around 2.5 percent in 2012, with the unemployment rate remaining “close to 9 percent through the end of 2012,” Elmendorf said.
For members of the committee steeped in the challenges of the nation’s debt, Elmendorf’s testimony came as little surprise. But the choices he presented to the panel were no less stark.
“Attaining a sustainable budget for the federal government will require the United States to deviate from the policies of the past 40 years in at least one of the following ways,” he said. “Raise federal revenues significantly above their average share of GDP; make major changes to the sorts of benefits provided for Americans when they become older; or substantially reduce the role of the rest of the federal government relative to the size of the economy.”