Credit: Reuters Pictures / Jonathan Ernst
The head of the non-partisan Congressional Budget Office testified before the super-committee on deficit reduction on Tuesday, and while he outlined the basic math behind the nation’s long-term debt problem, he had a surprising message: don’t be afraid to make the deficit bigger over the next couple years, while the nation battles recession.
Douglas Elmendorf, the CBO director, said that given the massive Bush tax cuts, which severely throttled the federal government’s revenue stream, and given the large number of baby-boomers who will be on Medicare—combined with skyrocketing health costs—something has to give.
“Citizens will either have to pay more for their government, accept less in government services and benefits, or both,” he said.
But Elmendorf was also frank about the depths and danger of the current recession—and how it’s creating a much bigger deficit. He noted that the largest contributor to the government’s current red ink is a $5 trillion output gap, and that the costs of that gap are “borne unevenly, falling disproportionately on people who lose their jobs, who are displaced from their homes, or who own businesses that fail.”
He then urged the committee to make sure that whatever they do, it doesn’t actually have a real effect any time soon. “Immediate spending cuts or tax increases would represent an added drag on the weak economic expansion,” he said.
“In our analysis, to provide the greatest boost to the economy now would be to cut taxes or increase spending in the immediate term, then in longer term cut spending or increase taxes,” Elmendorf added. He repeatedly suggested approving policies that “would widen the deficit now but reduce it later in the decade.”
This, of course, roughly mirrors what Obama proposed in his American Jobs Act —an increase in spending in areas like infrastructure and aid to state governments, along with reductions in payroll taxes. It’s possible that the super-committee could actually enact certain parts of that plan in their final report.
But many of the committee’s austerity-obsessed Republicans weren’t hearing it. Representative Jeb Hensarling, a co-chair of the committee, said that slashing spending and reducing the deficit was in itself stimulative.
“We have a spending-driven debt crisis,” Hensarling said. “Deficit reduction will be a jobs plan.”
Similarly, Sen. Rob Portman tried to get Elmendorf to agree that European countries that embrace austerity budgeting perform better and recover faster than those that don’t. Elmendorf refused, and cited a recent International Monetary Fund study  that found austerity increases unemployment while also lowering wages.
The committee’s liberals, meanwhile, repeatedly stressed that the policies over the past ten years that created the current deficit shouldn’t be part of whatever solution the super-committee comes up with.
“We embarked upon two wars, one of which was dubious at best. Using credit cards, we instituted two tax cuts, totaling $544 billion, which were tilted in favor of millionaires and billionaires,” said Representative James Clyburn.
“To know where to go with the work that we have to do, you have to know from where we came,” said Representative Xavier Becerra, a member of the House progressive caucus. “A select few in this country enjoyed the additional government spending that occurred in those ten years, while the rest of Americans are being confronted with paying the tab.”
However the super-committee decides to act, time is short. The deadline for the super-committee to report a plan is November 23, but Elmendorf shaved three weeks off that deadline on Tuesday when he told the committee that the CBO will need a plan in the first week of November in order to score it by the deadline—something both parties will certainly want.