The Daily Item, Sunbury, PA


March 7, 2013

Budget cuts damage economy without aiding outlook


Some of the budget savings will be consumed by the loss in tax revenue and higher outlays for food stamps and other safety- net programs because of the slowing economy. Mark Zandi, chief economist for Moody's Analytics Inc., said the slower growth will cost the federal government $23 billion this year.

Obama denounced the sequestration as "arbitrary" and "just dumb," saying the cuts would amount to a "slow grind" on the economy, during a news conference on March 1, the day they began to take effect.

Republican budget hawks agree the cuts are poorly targeted. Some, however, question the scale of the economic impact that private forecasters anticipate and argue that alternatives such as a tax increase or waiver would be worse.

"It's a lousy way to budget," said Patrick Knudsen, former policy director for the House Budget Committee Republican staff and now a fellow at the Heritage Foundation in Washington. Still, he said, "getting spending cuts is better than not getting them, frankly. One of the things we hope and expect is people will discover this wasn't so hard after all."

Douglas Holtz-Eakin, a former director of the Congressional Budget Office and an economic adviser to Republican John McCain's 2008 presidential campaign, said the economic models of both government and private forecasters exaggerate the impact of spending cuts.

"They really underweight the important of confidence and expectations," Holtz-Eakin said.

Sequestration will demonstrate to business leaders a commitment to reduce spending and give them greater confidence to invest without fear that the value of future profits will be eroded by higher taxes, he said. Conversely, an effort to stop them would send the opposite message.

The biggest hang-up for both Obama and the Republicans is how to curb Medicare costs. While both sides have trumpeted plans to rein in the federal program, which last year provided insurance to about 49 million elderly and disabled Americans, some health-care economists say the proposals are flawed.

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