Republican debt cap plan to cut US jobs, slow growth: Economist
Moody’s chief economist told a US Senate panel that the Republican plan will “meaningfully increase” recession chances.
A Republican plan to cut federal spending in exchange for lifting the US government’s debt ceiling would reduce employment, slow economic growth and “significantly increase the likelihood of a recession,” Moody’s Analytics chief economist told a report on Thursday. Senate Committee.
Mark Zandi told the Senate Budget Committee that US GDP growth in 2024 would be 1.61 percent if the Republican plan was implemented, compared to 2.23 percent otherwise, and would lead to 790,000 fewer jobs.
Republicans are urging Democratic President Joe Biden to agree to spending cuts as a condition of raising the United States’ self-imposed debt ceiling of $31.4 trillion. Biden and his fellow Democrats are urging Congress to raise the cap without conditions.
The stalemate is already deterring investors: On Thursday, the federal government paid the highest interest ever for a one-month debt issue.
Zandi said passing the bill passed by the Republican-controlled House of Representatives without amendment would take a heavy toll on US economic growth. But he also said it would be “catastrophic” to avoid default, echoing the assessment of many other analysts and economists.
Zandi said the government will most likely run out of money to pay its bills by June 8 if Congress doesn’t act, though he said it could happen any time between June 1 and August 8. US Treasury Secretary Janet Yellen warned Republican House Speaker Kevin McCarthy in a letter earlier this week that the federal government could meet its spending limit on June 1 if Congress does not raise the debt ceiling.
“We need to end this drama as soon as possible. If we don’t, we will go into a recession and our fiscal problems will only get worse,” Zandi told the committee.
The hearing is the first of several planned by Senate Democrats, who say legislation passed by the House last week along a party line would undermine childcare, education and other government programs.
Republicans have said the cuts are needed to curb the growth of US debt, which is expected to rise steadily over the next few years as aging populations drive up pension and health costs.
That would mean that the government would have to spend a growing share of its revenues paying interest on its debts, rather than more productive uses, without taking action to reduce annual budget deficits.
Biden will meet House Speaker Kevin McCarthy and other top lawmakers at the White House on Tuesday. The deadlock has worried investors, who have driven yields on a whopping $650 billion in government bonds to record highs.
‘Risky and flawed’
Democrats have accused Republicans of hostage-taking, but Brian Riedl of the conservative Manhattan Institute said Congress has often used debt-ceiling deadlines to negotiate budget deals in the past.
“If we don’t want lawmakers to use this risky and flawed process to address growing deficits, let’s debate and come up with a better budget process,” he said.
The centerpiece of the House Republican plan would cut much of government spending by 8 percent next year and limit growth by 1 percent each year thereafter.
The Republican plan doesn’t specify what spending would be cut, but some party figures have said they would protect military and veterans programs. Democrats said this would lead to average cuts of 22 percent on domestic programs such as education and law enforcement, a figure Republicans have not disputed.
Biden has proposed raising taxes on the wealthy to reduce budget deficits, but Senate Democrats have not tabled a proposal themselves.