Congressional Budget Office data released this week suggests the government will hit its “debt ceiling” in October, months later than the June showdown projected earlier this year, as the full impact of the sequester and tax increases is felt.
But lawmakers shouldn’t take the summer off. There has been almost no effort to make meaningful cuts to the biggest drivers of our long-term deficits. Meanwhile, the short-term deficit cuts that we have put in place are coming at a very high cost to economic growth.
The New York Times reported this morning that a survey of private-sector and government economists revealed the economy would be growing two percentage points faster this year – and unemployment would be one full percentage point lower, at 6.5 percent – if Washington had not instituted the spending cuts and tax increases that have taken effect since 2011. The Fed has explicitly linked its interest-rate policy to a 6.5 percent unemployment benchmark.
Smart fiscal policy would pair careful cutbacks today, while unemployment remains elevated, with more significant spending cuts to major deficit drivers in the medium- and long-term. But, as New York Fed President William Dudley puts it: “Instead, we have nearly the opposite: significant retrenchment in the near-term, but no credible action over the long-term, with partisan divisions and significant uncertainty about what will happen next. Will the sequester, for example, be sustained or not?”
Two charts from the Times show just how austerity is taking its toll:
