What’s changed in Boehner 2.0

at 06:50 PM ET, 07/27/2011


(Joshua Roberts - Bloomberg)
Boehner 2.0 got scored by the Congressional Budget Office today, and the results (pdf) aren’t as different from Boehner 1.0 as you might think. The spending cuts jumped from $850 billion to $915 billion. Bigger, but not that much bigger. The real change is in the timing: the original bill had only $5 billion in spending cuts next year. Like Reid’s bill, this version has more than $20 billion.

Remember that these spending cuts aren’t alone. Unless future legislation changes this, they’re alongside the expiration of the $160 billion payroll tax cut and the $60 billion in expanded unemployment insurance that the administration negotiated in the 2010 tax deal. So that means the economy — which is very weak right now — is losing something in the neighborhood of $250 billion in federal support.

Earlier today, Suzy Khimm quoted the International Monetary Fund saying “a fiscal consolidation equal to 1 percent of GDP typically reduces GDP by about 0.5 percent within two years and raises the unemployment rate by about 0.3 percentage point.” There’s reason to believe that in a weak global economy, the effect will actually be worse than that. But let’s say it isn’t. Projected GDP in 2012 is about $15.8 trillion. So a $250 billion cut is about 1.5 percent of 2012’s projected GDP. So whether we pass Reid or Boehner’s plan, we’re looking at a drag on growth of more than 0.5 percent of GDP and a drag on employment of more than 0.3 percent.

This is not good for the recovery.

 
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