House Republicans’ plan to cut $61 billion from the federal budget could harm the economic recovery, say two independent economic analysts.
Investment firm Goldman Sachs estimates the GOP plan would reduce U.S. economic growth by up to two percent this year, while Moody’s Analytics Chief Economist Mark Zandi says the plan would lead to the loss of 700,000 jobs by the end of 2012.
“While long-term government spending restraint is vital, and laying out a credible path toward that restraint very desirable, too much cutting too soon would be counterproductive,” says Zandi. “The economy is much improved and should continue to gain traction, but the coast is not clear; it won’t be until businesses begin hiring aggressively enough to meaningfully lower the still-high unemployment rate.
“The economy is adding between 100,000 and 150,000 per month—but it must add closer to 200,000 jobs per month before we can say the economy is truly expanding again. Imposing additional government spending cuts before this has happened, as House Republicans want, would be taking an unnecessary chance with the recovery.”
The deadline to pass a federal budget is Friday, March 4th. If the House and Senate fail to reach a compromise by that date, the federal government would be forced to shutdown. Lawmakers are expected to vote in the coming days on a plan to temporarily fund the federal government until March 18th in order to prevent that from happening.