Is Deficit Reduction Code for Austerity, Which Will Harm the Economy?

Some policymakers and commentators have conflated calls for deficit reduction with calls for austerity. It is true that some countries have enacted austerity measures – or sharp reductions in current spending and/or large up- front tax increases – which in many cases have damaged economic performance and increased unemployment. However, most advocates of fiscal responsibility in the United States, which has the luxury of not having to make changes from market pressures thus far, have called for gradual reductions in long-term deficits so that the debt grows slower than the economy. These changes tend to have minimal near-term effects as well as the potential to significantly grow the size of the economy over the long term.

As an example, one of the main principles of the Simpson-Bowles plan was “don’t disrupt the fragile economic recovery,” and it achieved this goal by delaying almost all deficit reduction for 2 years, and then phasing in most changes and adjustments slowly. Many recent deficit reduction plans have actually called for modest increases to near-term deficits by replacing short-term “sequester” cuts with more thoughtful long-term savings.

Ruling: False