Rx for a double-dip recession: Cut government spending by 15 percent
Republicans in Congress have proposed to cut federal spending by an unreasonable amount next year. What would such a huge reduction across the board look like?
Apparently nostalgic for recession, more than 100 House Republicans have proposed to cut federal spending by $550 billion in 2012. The Republican Study Committee (RSC) doesn’t ever quite say this is their plan, but it is. One hardly knows where to begin.Skip to next paragraph
Howard Gleckman is a resident fellow at The Urban-Brookings Tax Policy Center, the author of Caring for Our Parents, and former senior correspondent in the Washington bureau of Business Week. (http://taxvox.taxpolicycenter.org)
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This is an amazing number. It implies a 15 percent reduction in government spending in a single year—in the midst of a weak economy with unemployment that exceeds 9 percent. It is an austerity budget of historic proportions. Just to compare, the United Kingdom is moving to cut spending by 20 percent over four years. The House Republican budget devised by Budget Committee Chair Paul Ryan (R-WI) would cut 2012 spending by about 3 percent or $110 billion. The RSC would make Ryan look like a crazed liberal. Of course, that may be the idea.
Not only do these lawmakers appear oblivious to the real economy, they may also be fundamentally misreading the markets. I am increasingly hearing from Wall Street that a double-dip recession is a far more immediate worry than the deficit. Of course red ink remains a long-term problem, and Congress must both cut spending and raise taxes to address it. But by slashing spending so deeply and quickly, the RSC would almost surely throw the economy back into recession.
The RSC describes this part of its plan in only one sentence: “We must implement discretionary and mandatory spending reductions that would cut the deficit in half next year.” To do the math, the Congressional Budget Office projects next year’s deficit at about $1.1 trillion. No tax increases on anyone allowed (Heaven forbid people should get less of a government subsidy on their $900,000 beach house mortgage) so the RSC would have to cut spending by $550 billion to knock down the deficit by half. The remainder of the proposal would cap all federal spending at 18 percent of Gross Domestic Product and enact a Constitutional amendment to both enforce that 18 percent ceiling and bar any tax increases.
My Tax Policy Center colleague Bob Williams reminds me that only twice in modern history has the U.S. reduced spending by more than 10 percent in a single year—at the end of World Wars I and II. Congress did slash outlays by 10 percent in 1937-38, a time eerily like today, and we know how well that worked out.