Perspectives on Long-Term Deficits

Testimony Before the U.S. House of Representatives Committee on the Budget

SOURCE: Center for American Progress

CEO and President John Podesta testifies before the U.S. House of Representatives Committee on the Budget. Read the full testimony (CAP Action).

Mr. Chairman, members of the Committee, thank you for inviting me here today and giving me the opportunity to talk about the Center for American Progress’s recent proposal for achieving fiscal sustainability.

The position you are in today is not one I envy. This committee is faced with a very serious, and a very delicate challenge—addressing a truly dangerous long term deficit outlook, while also ensuring our economy recovers fully from the worst recession since the Great Depression. To get it right, policymakers must perform the metaphorical equivalent of navigating the ship of state through an extremely narrow waterway.

Both overcorrecting and undercorrecting pose serious threats to our economy. Failing to adequately address long-term deficits, on the one hand, threatens to result in a number of negative consequences. High levels of government borrowing can reduce domestic investment, raise interest rates, and spur inflation; seriously hinder the ability to make important public investments; and potentially leave us unable to stimulate the economy in a time of future crisis. The threat of sustained deficits can also lead to strong reactions by economic actors—investors, consumers, trading partners—that increase the likelihood of additional financial turbulence and threaten the stability of the dollar.

Overcorrecting, on the other hand—closing the spigot on the American Recovery and Reinvestment Act, in particular, before the economy has fully recovered—would both jeopardize our economy and kill the prospect of job growth, while also making it harder, over the long run, to address the deficit outlook over the next decade. Pursuing drastic and immediate deficit reduction when the economy has only recently returned to growth and unemployment is still at 10 percent would be an enormous mistake; fiscal retrenchment right now could lead to a double-dip recession. Those who would use current deficits as an excuse to curtail or prevent policies designed to speed the recovery are doing the country and future budgets a disservice. Recovery spending today is both necessary and entirely appropriate, even in light of the long-term budget challenge. It accelerates the recovery. Taking these appropriate steps today, in order to bring the economy back to its full health, will put us in the strongest position from which to undertake deficit reduction over the longer term. Deficit spending in the near term will help produce a return to robust economic and employment growth, yielding significant dividends in terms of future deficit reduction.

CEO and President John Podesta testifies before the U.S. House of Representatives Committee on the Budget. Read the full testimony (CAP Action).