Former congressional budget chief: Balanced budget would increase job growth

Chris Moody

A balanced federal budget that reduces the national debt, like the one proposed by House Republicans this week, would add about 5 million more jobs to the economy by 2023 compared with current spending levels, suggests an analysis provided to Yahoo News by the American Action Forum, a center-right policy group.

House Budget Committee Chairman Paul Ryan on Tuesday released his new budget proposal, which calls for slowing the growth of federal spending by $4.6 trillion and balancing the federal budget over the next 10 years. The proposal also would shrink the debt-to-GDP ratio to under 90 percent by 2019.

Under current projected spending levels, that ratio is expected to remain above 90 percent every year over the next decade. Based on the premise that national economies grow by about 1 percent less when debt exceeds 90 percent of GDP, the president of the AAF—and former Congressional Budget Office director—Douglas Holtz-Eakin predicts that the Republican budget would allow for 5 percent more in economic growth than under current law, translating to that estimated 5 million new jobs in 10 years.

"There are many perspectives from which to analyze a budget resolution: the economic assumptions on which it is based, the entitlement and tax reforms it enables, the defense and non-defense appropriations it permits, and the debt levels it implies. In this case, however, it is the latter that is most important," Holtz-Eakin and AAF analyst Gordon Gray write in their forthcoming analysis of the Ryan budget, which also argues that incomes would grow as the debt shrinks.

"Using the administration’s estimates, one percentage point in growth translates into approximately 1 million jobs created," they continued. "The budget resolution would avert such job losses and increase job gains by 5 million over the 2019-2023 period."

Democrats have dismissed Ryan's method of achieving a balanced budget, which calls for overhauling the nation's Medicare system, repealing the federal health care law passed in 2010 and implementing major cuts to other government spending. (A separate analysis, from the liberal Center for American Progress, argues that Ryan's budget cuts could actually damage the economy.)

But despite the benefits of lowering the debt-to-GDP ratio, there is not widespread bipartisan agreement on whether balancing the budget should be a top priority. Ryan's plan would balance the budget through spending cuts alone. The Democratic plan calls for a combination of discretionary spending reductions, tax increases and boosting infrastructure spending, but it does not balance the budget in the foreseeable future.

In an interview with ABC News this week, President Barack Obama said he was not interested in balancing the budget "just for the sake of balance. My goal is how do we grow the economy, put people back to work, and if we do that we are going to be bringing in more revenue."

He added, "We’re not gonna balance the budget in 10 years because if you look at what Paul Ryan does to balance the budget, it means that you have to voucher-ize Medicare, you have to slash deeply into programs like Medicaid, you’ve essentially got to either tax middle-class families a lot higher than you currently are or you can’t lower rates the way he’s promised."