Economists: Biggest Threat to Job Creation is Out-of-Control Spending, Threat of Tax Hikes |

In a recent interview with the Wall Street Journal, one of the world’s most successful money managers, Stanley Druckenmiller, refutes Democrats’ claim that failing to raise the debt ceiling is the most catastrophic threat facing the economy.  According to Druckenmiller, “‘what’s going to be catastrophic is if we don’t solve the real problem,’ meaning Washington’s spending addiction.” Speaker Boehner emphasized that point in an interview on CBSFace the Nation yesterday:

“[T]he fact that we’re borrowing 42 cents for every dollar that the federal government spends this year -- that’s hanging like a cloud over employers.  They see all this deficit spending.  They see this debt.  And it scares them to no end. That’s why economists have written to me on several occasions over the last six months suggesting that if we were to cut spending and begin to address our long term debt problems, that it would lead to a better environment for job creation in America.”

Earlier this year, Speaker Boehner sent a statement signed by 150 economists to President Obama making clear that “to support real economic growth and support the creation of private-sector jobs, immediate action is needed to rein in federal spending.” As several economists have confirmed, the sea of red ink coming out of Washington only portends higher taxes in the future – making it all but impossible for small business owners to plan, grow and hire new workers.  Here’s just a sample of what economists have said about the threat that Washington Democrats’ out-of-control spending binge poses to economic growth and job creation:

  • Stanford University Professor Dr. Edward P. Lazear: “Perhaps the Largest Threat to Long Term Growth is…Government Spending.” “Perhaps the largest threat to long term growth is the recent high level of government spending, which will result in high deficits or will require that we raise taxes substantially.  Either course impedes economic growth.” (Testimony, 3/30/11)
  • Dr. Veronique de Rugy, Senior Research Fellow at the Mercatus Center: Spending and Its Symptoms (Debt and Deficit) Often Signal That Taxes Are Likely to Go Up in the Future,” Injecting “A Significant Amount of Uncertainty Into the Economy.” “Spending and its symptoms (debt and deficit) often signal to consumers, businesses and investors that taxes are likely to go up in the future.  This prospect tends to inject a significant amount of uncertainty into the economy and weakens confidence.  That uncertainty means that investors don’t invest; employers don’t hire; and consumers save, rather than spend, money.  People can’t find jobs; unemployment grows.  This, in turn, hurts an already sluggish economy and has a negative impact on job creation.” (Testimony, 3/31/11)
  • Former Congressional Budget Office Director Douglas Holtz-Eakin: Entrepreneurs “Perceive the Future Deficits as an Implicit Promise of Higher Taxes.” “[B]usinesses, entrepreneurs and investors perceive the future deficits as an implicit promise of higher taxes, higher interest rates, or both. For any employer contemplating locating in the United States or expansion of existing facilities and payrolls, rudimentary business planning reveals this to be an extremely unpalatable environment.” (Testimony, 3/10/11)
  • Maya MacGuineas, President of the Committee for a Responsible Federal Budget: Businesses “Don’t Know What Spending and Tax Policies to Expect in the Future, and Thus Cannot Plan Accordingly.” “Uncertainty surrounding the country’s fiscal path is eroding confidence among businesses and individuals. They don’t know what spending and tax policies to expect in the future, and thus cannot plan accordingly. If businesses and individuals do not know what spending cuts and/or tax increases they might face in the future, or even if the country might face a fiscal crisis of some form or another, they will be less willing to make longer-term investment decisions in our economy. As the economic recovery continues to lag, uncertainty contributes to the problem of how to encourage businesses to be the engine of growth.” (Testimony, 3/10/11)
  • John B. Taylor of Stanford University’s Hoover Institution: A Credible Plan to Reduce the Deficit “Will Increase Economic Growth and Reduce Unemployment.” “Basic economic models in which incentives and expectations of future policy matter show that a credible plan to reduce gradually the deficit will increase economic growth and reduce unemployment by removing uncertainty and lowering the chances of large tax increases in the future.” (Economics One Blog, 2/28/11)

The new House majority has made clear that there will be no increase in the debt ceiling without an accompanying decrease in spending that is greater than the debt limit increase. Republicans made a Pledge to America to stop the out of control spending binge and help end the economic uncertainty that is making it harder to create more American jobs – and we’re going to keep it.