In a sharp role reversal, Democratic leaders in Congress Wednesday called for both spending and tax cuts as a way to jump start the sagging economy but their conversion to spending less comes when a new report claims the nation faces more of a debt crisis unless taxes are raised.
The Congressional Budget Office report warns America faces a “European-style” debt crisis unless taxes are raised along with sharp spending cuts and adds more pressure on Congressional negotiators who are trying to work out a deal to raise the debt limit before the government runs out of money.
Which creates contradictory goals for budget negotiators: How do you mix stimulus and austerity in bad economic times.
Democrats — keeping a sharp eye on declining prospects for the 2012 elections — also want a jobs deal as part of any package.
“Let’s get the recovery right before you get in this deficit-cutting mode,” assistant Senate Democratic leader Dick Durban said. “Get people back to work.”
But Republicans want more spending cuts and claim immediate cuts would boost the economy and create jobs. That, Federal Reserve Chairman Ben Bernanki says, is a recipe for disaster.
“I don’t think that sharp, immediate cuts in the deficit would create more jobs,” Bernanke said. “In the short run, fiscal tightening is at best neutral and probably more negative for job creation.”
- CBO echoes Bernanke: Immediate spending cuts could hurt recovery (dailykos.com)
- CBO warning to Congress: national debt needs action, and soon (csmonitor.com)