By Cliff Montgomery – Aug. 3rd, 2011
On Aug. 1st, the Economic Policy Institute (EPI) released a damning indictment of the Debt ceiling agreementput together by Congress, declaring that it “concludes a needlessly manufactured crisis and will do great harmto our nation.”
Below, The American Spark quotes the EPI Statement from President Lawrence Mishel:
“This…debt ceiling deal tentatively concludes a needlessly manufactured crisis and will do great harm to ournation. The debt we are undertaking now and scheduled to undertake over the next ten years is solely theproduct of past decisions (primarily unfunded wars, an unfunded prescription drug benefit and two rounds oftax cuts under President George W. Bush) and the recession-related revenue losses caused by the financialcrisis generated by financial de-regulation and weak oversight.
“We should end the need to legislatively raise the debt ceiling since debt decisions are already made whenbudget bills are passed and we should hold our elected officials accountable for the budget decisions theymake.
“There is no economic necessity to undertake spending cuts or deficit reduction plans at this point in theeconomic recovery, when high unemployment is expected to persist for several more years. Jobs should be thepriority 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-relatedsupports 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 borrowingauthority needed to maintain obligations to citizens and creditors through 2012. [Thus] a two-year extension of all theBush tax cuts is now being fully financed with deep spending cuts.
Phase One
“The agreement calls for reductions in nominal (not inflation-adjusted) spending over the next two years whichwill only act to slow the recovery.
“Absent from this deal is any continuation of the Emergency Unemployment Compensation (or EUC, forunemployment insurance benefits beyond the twenty-six weeks provided by most states) and the payroll taxholiday 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 [EUC] and payroll tax holiday provisions–coupled with the new spending cuts–guaranteesan 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, regulationand other domestic needs.
“The spending caps will reduce non-security domestic spending to just 1.8% of GDP in 2021, the lowest levelsince the 1950s and the amount we now spend [just] on public investment.
“Thus, this spending level will not allow us to both maintain current levels of public investment and the normalfunctions for housing, criminal justice, regulatory enforcement and other needs.
Phase Two
“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 wouldbe 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 supporttax increases or revenue-raising tax reform. If so, this would simply continue the one-sided approach to deficitreduction, 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 theinitial 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 defenseand non-defense programs beginning in 2013.
“If triggered, those cuts would kick-in while unemployment is between 8 and 9% and lead to higherunemployment and lower family incomes.”
