How To Fix US Debt Without Hurting Fragile Economy
Efforts to close the budget gap have been stymied by Republicans' refusal to accept new tax increases and Democrats' insistence that any spending cuts be matched by tax increases. Democrats are also reluctant to shrink spending on popular entitlement programs such as Medicare and Social Security.
In August 2011, President Barack Obama and congressional Republicans agreed to a setup that was supposed to force a compromise. If they couldn't reach a deal by Jan. 1, 2013 â¿¿ a deadline later extended to March 1 â¿¿ automatic spending cuts would kick in. The thinking: The cuts would be so painful to both sides that they'd come to an agreement. The ax would fall equally on a wide range of domestic programs the Democrats support â¿¿ from preschool programs for poor children to environmental protection â¿¿ and on defense spending that Republicans support.
It hasn't worked. The across-the-board cuts look more likely each passing day.
But economists say the automatic cuts are practically the worst way to attack the federal government's deficits and debt. Here's what they advise instead:â¿¿ DON'T CUT NOW The economy has yet to regain full strength more than 3Â½ years after the Great Recession officially ended in June 2009. Growth has averaged 2.1 percent annually the past three years. That isn't strong enough to generate healthy job growth. Unemployment is stuck at a high 7.9 percent. Cutbacks by state and local government have dragged down economic growth the past two years. Deep federal cuts now would worsen things. Macroeconomic Advisers predicts the automatic cuts would reduce economic growth this year to 2 percent from 2.6 percent, wipe out 700,000 jobs and keep unemployment at 7.4 percent or higher through 2014 "We're right on the edge of what the economy can digest" in spending cuts, Zandi says. Only two of 31 economists surveyed last week by the Associated Press called for significant spending cuts now. The rest wanted to see deep cuts delayed.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV