Republican Budget-Cut Plan Would Cost 700,000 Jobs by 2012, Moody's Says

House Republicans’ $61 billion budget-cutting plan would cost 700,000 jobs, according to a report likely to inflame the debate over the U.S. government deficit.

The measure would reduce real economic growth this year by 0.5 percentage points and by 0.2 percentage points next year, resulting in 700,000 fewer jobs by the end of 2012, said Mark Zandi, chief economist for Moody’s Analytics. He said budget- cutters should wait until the U.S. economy is stronger, saying Republicans “would be taking an unnecessary chance with the recovery.”

“Significant government spending restraint is vital, but given the economy’s halting recovery it would be counterproductive for that restraint to begin until the U.S. is creating enough jobs to lower the unemployment rate,” Zandi said.

The House approved its plan Feb. 19. Democrats who control the Senate have said they wouldn’t accept the reductions.

A spokesman for House Speaker John Boehner, an Ohio Republican, dismissed Zandi’s report.

“The fact that a relentless cheerleader for the failed ‘stimulus’ -- which the Democrats who run Washington claimed would keep unemployment below 8 percent -- refuses to understand that ending the spending binge will help the private sector create jobs is sad, but not surprising,” said Michael Steel.

The U.S. unemployment rate was 9 percent in January.

Last week, Goldman Sachs said the House budget plan would shave between 1.5 and 2 percentage points off economic growth during the second and third quarters of this year.

Zandi said the proposed spending cuts would come at a particularly inopportune time because the economy is under new pressure from rising oil prices, pushed upward by the unrest in the Middle East. He said the plan would also undo some of the economic boost provided by the Federal Reserve and the $858 billion tax-cut package approved in December by Congress.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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