The U.S. government should address its gaping deficits and take steps to narrow them, but should go slowly, said Christina Romer, former chairwoman of President Barack Obama’s Council of Economic Advisers.
Cutting spending too fast could derail the country’s already tepid recovery and threaten job growth.
“The first tenet is to go slowly. Investors are willing to lend to the United States at the lowest interest rates in our history. That gives us the ability to cut the deficit on our own timetable,” Romer wrote in a New York Times opinion piece.
Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans
“We should pass a comprehensive, aggressive deficit reduction plan as soon as possible, but the actual spending cuts and tax increases should be phased in as the economy recovers.”
Fiscal issues have taken center stage this year.
At the end of this year, Bush-era tax cuts and other tax breaks are scheduled to expire, while preprogrammed cuts to public spending kick in at the same time, a combination known as a fiscal cliff that could send the country sliding into recession next year if left unchecked by Congress, according to Congressional Budget Office studies.
Republicans and Democrats remain largely divided on how to deal with the fiscal cliff and longer-term fiscal imbalances in general. They are mainly split over on the role increasing revenue plays in tackling deficits.
Lawmakers have resisted dealing with the fiscal cliff in an election year so far, with some suggesting instead they can convene early in 2013 and deal with the matter retroactively.
Whatever the solution may be, harsh action should be avoided.
“[I]mmediate, extreme austerity would plunge us back into recession. The Congressional Budget Office set off alarm bells a few weeks ago when it said that going over the fiscal cliff … would cause a rapid rise in unemployment. Well, duh,” Romer wrote.
Some policymakers expect lawmakers will let the country drive over the cliff but will steer the country away from recession by quickly dealing with the problem retroactively in early 2013, including Peter Orszag, vice chairman of global banking at Citigroup.
“I unfortunately think the most likely scenario is we actually go over the cliff, and then there’s a deal that’s cut in early or mid-January in which you combine a more progressive tax cut that what would have just expired with entitlement reform and simultaneously raise the debt limit,” Orszag told CNBC.
Even though the nonpartisan Congressional Budget Office has warned of a recession, such a fate is not likely to occur, added Orszag, former director of the Office of Management and Budget in the Obama administration.
“What they are saying is if you go over the cliff and stay there, that is such a fiscal constraint that that will cause a recession.”
Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans
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