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Harvard University Professor Martin Feldstein on the impact on the economy of government spending and the potential sequestration.
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Meanwhile President Obama has warned that coming budget cuts will do serious harm to our economy and the markets and disrupt our lives.
Even though overall federal spending will actually be increasing this year even with those cuts.
But -- a slow down of federal spending increases drag our underperforming economy down even further.
Joining us now is Martin Feldstein his Harvard economic professor and former chief economic advisor under President Reagan always a pleasure to see you Marty thanks for coming in appreciate it.
Good to be back from him let me first start with saying the playing -- some sound -- from the president earlier about the economic of -- Of these automatic decreases in federal spending -- played -- clip and get your reaction.
Every time that we get a piece of economic news.
Over the next month next two months next six months.
As long to this question is employers -- -- bad bad economic news could have been better.
If congress have not fail to act.
So party what do you make of that any bad economic news that we now get in the future will -- -- because of the sequester.
Well not any -- Economic news there are other things that can hit the economy we know oil prices can do it we -- weakness in Europe can do with.
But it's certainly true that.
The sequester very badly designed way of shrinking government spending.
Will hurt not only the -- Posture of the United States.
But will hurt the economy but at the same time is it not true debt in 2013.
Overall net net we will be spending fifteen billion more.
Wins these cuts than we were in in 2012.
Nine that number doesn't sound right how much true 015 billion dollars more in 2013.
Overall.
Because -- certainly automatic increases and Social Security everything.
Yes -- that's about 1% little less than 1%.
Of GDP increase of course revenue goes up so the deficit will be coming down a bit but all -- that misses the point.
That the longer term deficits over the next 510 years and beyond are just out of control and that we have to find a way of dealing with that.
All right but we just had a 160.
Billion dollar tax increase that the president put into effect -- Republicans finally work.
Kind of painted in -- -- signed off on it but.
-- a 160 billion dollars taken out of the private sector.
In the form of tax increases.
Isn't that more harmful to the private sector.
Then -- forty to eighty billion dollars taken out of the government sector.
Well you know the government said.
There is spending that money in the private sector so I think that's a bit of -- of false distinction.
I would say that the key thing now.
It -- to a slow the growth of government spending to cut the the role of government spending.
But that means we've got -- go where after the government spending that's done through the tax code.
Because if you look at the defense budget it's on its way down -- levels we haven't seen as a share of GDP.
Since before World War II.
And non defense discretionary programs are also shrinking to about 3% -- -- real.
Domestic spending.
Is being done.
Through entitlements.
And through the tax.
Benefits.
And that are called tax expenditures.
Your tax expenditures or what what we would call a special deals with a special interest -- those of the things that the president wanted to get with the Republicans wanna get -- -- -- not a tax increases are low tax rate of just special interest everything not just special interest I think we all.
Get to benefit.
From things like the mortgage reduction in the state local tax deduction in the exclusion.
Of employer.
But you know we care about health benefits but we just can't afford to do all of that.
We're either gonna have to raise tax rates which would be very bad -- economy or.
Which we've done and we have to raise them on lowering come individuals -- we've got to put some kind of limits.
On these tax expenditures -- deductions and exclusions.
While we may see saw most spending in some places in the government go down the overall debt continues to increase if we can put up the debt clock because.
It seems to it seems like just yesterday that we popped up.
Pass that sixteen trillion dollar market look at this we are now at sixteen.
Point six trillion dollars were closer to seventeen trillion dollars.
Then we artist sixteen trillion it seems like just yesterday we were at sixteen self.
Despite the president's call for -- balanced approach we've had two plans from the present one in January December January.
And more recently in the senate.
Neither one of which has any real spending cuts since the president is not gonna do it since the Democrats controlling the -- are not gonna do what.
Don't we needed something like sequestered to do it.
Sequester will do something but it's such a badly designed thing and -- And the damage that it does.
To our defense.
Activities and to the way the world sees our defense budget.
To me is very very dangerous and very damaging so I would like to see us.
Drill down on these tax expenditures on these special.
Features of the tax code that are really government spending.
And seek.
Can't we get rid of some of them can't we put limits on some of the others well if you could trade them for tax rate decreases as the president's 11 said he was for doing -- bugs.
We'll see a failure could -- -- quickly you could you could if you put a limit on tax expenditures you would raise enough revenue did you make a significant long term dent in the deficit.
And have money left over to do -- rate reduction professor Martin Feldstein from Harvard University that little place up in Boston thank you very much good to see you -- -- -- -- view him.
