Austan Goolsbee, chairman of the U.S. Council of Economic Advisers, said if Congress fails to raise the debt ceiling, the “impact on the economy would be catastrophic.”
“I don’t see why anybody’s playing chicken with the debt ceiling,” Goolsbee said today on ABC’s “This Week” program. “If we get to the point where we damage the full faith and credit of the United States, that would be the first default in history caused purely by insanity.”
The government is slated to hit the legal limit on borrowing, $14.3 trillion, early this year. Congress must agree to raise that ceiling or the U.S. could be forced to default on its obligations.
After candidates supported by anti-deficit Tea Party activists were elected on pledges to rein in government spending, some lawmakers have said they would demand budget cuts in exchange for voting to raise the debt ceiling.
The U.S. has a $1.3 trillion federal budget deficit. President Barack Obama’s debt-reduction panel failed last month to agree on its chairmen’s recommendations for ways to reduce the annual deficit to about $400 billion in 2015.
The plan would have increased taxes by $1 trillion by 2020 by scaling back or eliminating hundreds of deductions, exclusions or credits such as those allowing homeowners to write off interest on their mortgage payments. It would also have cut individual and corporate income tax rates.
Seeking Common Ground
Goolsbee said he anticipates Obama will find common ground with Republicans on legislation to benefit the economy, citing investment incentives and tax cuts for workers and small businesses, and warned against cutting back on spending needed for economic growth.
“The reason the deficit is big this year is because we’re coming out of the worst recession since 1929,” Goolsbee said. “That’s the reason. The longer-run fiscal challenge facing the country is important.”
Senator Lindsey Graham, a South Carolina Republican, said failing to raise the debt ceiling “would be very bad for the position of the United States in the world at large.” Still, he wouldn’t vote to raise it “until a plan is in place” to deal with debt, Graham said on NBC’s “Meet the Press.”
Reaching an agreement with Republicans, Obama on Dec. 17 signed an $858 billion bill that extends for two years the Bush-era tax cuts for all income levels. It also continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes for workers by two percentage points during 2011.
Goolsbee said the U.S. added 1.2 million private sector jobs in 2010 and cited forecasts for a “continued recovery.” The unemployment rate is currently 9.8 percent.
“You’re starting to see encouraging signs,” Goolsbee said. “And so, you know, we’ve just got to juice this, and pump it up, and get it going faster, but that’s clearly the direction that we’re headed.”