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Bernanke urges Congress to adopt sweeping deficit plan
He said that sweeping plans offered last month by President Obama’s deficit commission and other bipartisan groups offered “useful starting points for a much-needed national conversation about our medium- and long-term fiscal situation.”
Those plans included cuts in nearly every part of government, from defense and Social Security to veterans benefits and Medicare. And several also called for raising revenues by curbing cherished tax breaks such as the mortgage-interest deduction or through a national consumption tax.
“It is widely understood that the federal government is on an unsustainable fiscal path,” Mr. Bernanke told the Senate Budget Committee. “Yet as a nation we have done little to address this critical threat to our economy. Doing nothing will not be an option indefinitely; the longer we wait to act, the greater the risks and the more wrenching the inevitable changes to the budget will be.”
By adopting a comprehensive deficit reduction plan now that addresses Medicare, Social Security and other retirement programs, Mr. Bernanke said that Congress would enjoy some “near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence.”
But the Fed chairman warned Congress not to cut spending in a way that harms the “still-fragile” economic recovery this year. He added that Congress should seek to reform spending programs and taxes in a way that not only would reduce the deficit but would promote economic growth “for example, by encouraging investment in physical and human capital and by promoting research and development and by providing necessary public infrastructure and by reducing disincentives to work and to save.”
“We cannot grow out of our fiscal imbalances,” he said, “but a more productive economy would ease the tradeoffs that we face.”
While noting the economic outlook has brightened recently, Mr. Bernanke continued to defend the Fed’s controversial program of purchasing Treasury debt, which is helping the government to finance nearly $1 trillion of its debt this year. He said the Fed is compelled to keep trying to spur faster economic growth because of its mission of promoting both low unemployment and low inflation, and because sub-par job growth leaves the economy vulnerable to setbacks.
An unemployment report released by the Labor Department Friday morning showed that job growth remained tepid at under 100,000 a month. Mr. Bernanke had not seen that report before giving his testimony.
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