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Tuesday, September 13, 2011

CBO Gives Obama's "American JOBS Act" Thumbs Up! De Facto Endorsement! Tells Congress: "Spend Money Now!"

CBO To Congress: Spend money now!

As Congressional Budget Office director, Doug Elmendorf doesn’t advocate for specific policy proposals. Rather, his office tells Congress how much the policies that they decide on will cost.

But during his testimony in front of the “supercommittee” this morning, Elmendorf came awfully close to pushing Congress to support stimulus spending as part of its deficit reduction charge.

“Credible policy changes that would substantially reduce deficits late in the coming decade and over the long term, without immediate cuts in spending or increases in taxes, would support the economic expansion in the next few years and strengthen the economy over the longer term,” Elmendorf said at the hearing. “There is no inherent contradiction between using fiscal policy to support the economy today, while the unemployment rate is high ... and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.”

This could be a difficult policy for the supercommittee to follow through on. The 12-member panel’s charge is to find $1.2 trillion in cuts; making space for increased government spending is a challenge in that context.

But Elmendorf made the case that it’s the best approach. “If policymakers wanted to achieve both a short-term economic boost and medium-term and long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade,” he said.

Elmendorf did caution, however, that such an approach would need a good amount of political will behind it. It would need to be “sufficiently specific and widely supported” so that individuals and businesses would have confidence in the changes. There needs to be a belief on the part of the public, he urged, that “future fiscal restraint would truly take effect.” With public levels of confidence in Congress at all-time lows, finding faith that the body will act may be nearly as challenging as finding the funding for stimulus in the first place.

CBO Chief Gives De Facto Boost To Obama Jobs Plan

The Congressional Budget Office would be stepping out of bounds if it endorsed specific legislation or even hazy policy objectives. But it's hard to read CBO chief Doug Elmendorf's testimony to the joint deficit Super Committee Tuesday as anything other than a de facto endorsement of President Obama's broad strategy to boost the economy: legislation that spends money to hire people and reduces payroll taxes in the near-term, and that reduces deficits by even greater amounts in the middle and end of the decade.

"If policymakers want to achieve both a short-term economic boost and long-term fiscal sustainability the combination of policies that would be most effective according to our analysis would be changes in taxes and spending that would widen the deficit today, but narrow it in the coming decade," Elmendorf told the panel's 12 Democrats and Republicans. "The combination of fiscal policies that would be most effective would be policies that cut taxes or increase spending in the near-term, but over the medium and longer-term move in the opposite direction."

This is a generalized version of precisely what President Obama is proposing -- a $447 billion jobs bill that will increase spending on hiring programs, and reduce payroll taxes; accompanied by deficit reduction measures that take effect in 2013, to more than cover the cost of the jobs bill.

But Elmendorf went even further, under questioning he ranked various tax cuts by their stimulative impact, and payroll tax cuts, benefitting employers and employees topped the list.

Many Republicans are resistant to the idea of using the joint committee as a vehicle to pass or pay for Obama's jobs bill, a significant chunk of which they oppose. But the legislation is written in such a way that -- if it passes -- it will count any extra savings that the committee finds toward the cost of its bill. And at a Tuesday press conference House Speaker John Boehner encouraged the committee to go well beyond its statutory requirement of finding $1.2 trillion in deficit reduction.

Combined with the fact that the White House is now signaling that President Obama would sign piecemeal elements of his jobs plan, it's feasible that this could be a path to passing at least some additional expansionary policies this year.

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Sources: AP, TPM, Washington Post, White House, Youtube, Google Maps

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