Statement by EPI President Lawrence Mishel on the proposed agreement to raise the debt ceiling
This proposed debt ceiling deal tentatively concludes a needlessly manufactured crisis and will do great harm to our nation. The debt we are undertaking now and scheduled to undertake over the next ten years is solely the product of past decisions (primarily unfunded wars, an unfunded prescription drug benefit and two rounds of tax cuts under President George W. Bush) and the recession-related revenue losses caused by the financial crisis generated by financial deregulation and weak oversight. We should end the need to legislatively raise the debt ceiling, since debt decisions are already made when budget bills are passed, and we should hold our elected officials accountable for the budget decisions they make. There is no economic necessity to undertake spending cuts or deficit reduction plans at this point in the economic recovery, when high unemployment is expected to persist for several more years. Jobs should be the priority and jobs are the path to get our nation’s fiscal situation to a responsible place. A long-term deficit reduction at this time should only be done if coupled with substantial deficit-related supports to the economy to rapidly lower unemployment this year and next.
Tax cuts enacted last December account for roughly $800 billion (one-third) of the increased borrowing authority needed to maintain obligations to citizens and creditors through 2012; a two-year extension of all the Bush tax cuts is now being fully financed with deep spending cuts.
The agreement calls for reductions in nominal (not inflation-adjusted) spending over the next two years which will only act to slow the recovery. Absent from this deal is any continuation of the Emergency Unemployment Compensation (for unemployment insurance benefits beyond the twenty-six weeks provided by most states) and the payroll tax holiday for 2012, both of which President Obama has stated he wanted. Forecasters now expect unemployment to be 8.0% or more at the end of 2012, with several (Economy.com, Goldman Sachs) forecasting 8.3%. The absence of the UI and payroll tax holiday provisions coupled with the new spending cuts guarantees an even higher level of unemployment than the dismal rates already expected.
The spending caps do not allow the budget to meet our nation’s basic needs for public investment, regulation and other domestic needs. The spending caps will reduce non-security domestic spending to just 1.8% of GDP in 2021, the lowest level since the 1950s and the amount we now spend on public investment. Thus, this spending level will not allow us to both maintain current levels of public investment and the normal functions for housing, criminal justice, regulatory enforcement and other needs.
The debt ceiling compromise also charges a small bipartisan group of 12 members of Congress to propose $1.5 trillion (or more) in additional debt-reduction. If they agree on a package, the proposed legislation would be fast-tracked for a vote in both the House and Senate.
House Speaker Boehner has already suggested that the Republican delegation will be unwilling to support tax increases or revenue-raising tax reform. If so, this would simply continue the one-sided approach to deficit reduction, and would place Social Security, Medicare and Medicaid benefits at great risk. This is all the more true since domestic spending will already have been substantially reduced as part of the initial cuts. Consequently, this new process is likely to lead to a very unbalanced fiscal policy approach.
If no agreement is reached, further cuts to spending will be automatically triggered, including cuts to defense and non-defense programs beginning in 2013. If triggered, those cuts would kick in while unemployment is between 8 and 9% and lead to higher unemployment and lower family incomes.