U.S. would get short-term job spike if spending cuts reversed: CBO

WASHINGTON Thu Jul 25, 2013 4:44pm EDT

WASHINGTON (Reuters) - The economy would enjoy a short-term boost with up to 1.6 million jobs being added if Congress were to cancel more than $100 billion in upcoming automatic spending cuts required of the federal government, the Congressional Budget Office estimated on Thursday.

Earlier this year, Congress failed to negotiate a deal to either repeal $1.2 trillion in across-the-board spending cuts over 10 years or substitute them with more targeted government savings.

CBO, in a letter to Representative Chris Van Hollen, the senior Democrat on the House Budget Committee who requested the study, said cancelling the spending cuts scheduled for August 2013 through September 2014, would increase U.S. economic activity by 0.7 percent in the third quarter of 2014, the end of that fiscal year.

Employment, CBO said, would be 300,000 to 1.6 million higher by reversing the spending reductions than under current law.

"While we've made important economic progress in the last few years, it is indefensible that Congress would impose self-inflicted wounds on our still-recovering economy, especially while so many families are still struggling to make ends meet," Van Hollen said in reaction to the CBO report.

The national unemployment rate is currently 7.6 percent.

But CBO, a non-partisan agency that analyzes the fiscal and economic impact of legislation, also warned that over the long-term, reversing the spending cuts on domestic and military programs "would lead to greater federal debt, which would eventually reduce the nation's output."

Leading Republicans have defended the steep, indiscriminate spending cuts as necessary for slowing federal budget deficits and a national debt that is now at nearly $16.9 trillion and climbing.

President Barack Obama has pushed for replacing those cuts, known as sequestration, with a combination of targeted spending cuts and tax increases to further reduce budget deficits.

Republicans have balked at any further tax hikes beyond the rate increase they grudgingly agreed to early this year on top earners.

The result has been a deadlock over any replacement to the automatic spending cuts that most Washington politicians initially thought would never go into effect because they were so deep and so crudely imposed.

(Reporting by Richard Cowan; Editing by Cynthia Osterman)

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