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Job Creation through Spending Cuts


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A recent report from the Joint Economic Committee (JEC) eloquently illustrates the connection between spending cuts and job creation. In their analysis of economic data from all developed countries between 1970 and 2007, the JEC uncovered some instructive and encouraging findings.

Statistics show that 21 times in ten developed countries, governments were able to reduce debt by 4.5 percentage points or more of GDP within three years. Additionally, 26 times in nine developed countries, significant economic growth occurred along with the debt reduction. Far from taking many years to materialize, the economic growth started within three years of spending cuts. Notably, this job-creating debt reduction was not achieved by raising taxes. Rather, the study showed that economic growth in these countries was related to government spending reductions that could be characterized as "significant, credible, and difficult to reverse." Specific examples cited by the study include "reducing the number and compensation of government workers" and "eliminating agencies and programs."

The contrasts between recent U.S. policy and these success stories from other countries could not be more clear. President Obama insisted that we needed to spend money to address unemployment, but spending $1 trillion on the stimulus brought us nothing but increased debt and 21 consecutive months of 9 percent or above unemployment, which has just now inched down to 8.9 percent. Federal spending is up 36 percent compared to 2007, yet we've lost 2.5 million jobs since the stimulus passed.

The stimulus only served to add to the massive debt, creating crippling uncertainty among employers. Job creators know that the national debt is unsustainable and that the president and his party are eager to raise their taxes to pay for it.

We narrowly avoided a massive tax hike as recently as December, and President Obama's budget for 2012 includes $1.6 trillion in new taxes even though the facts demonstrate that taxes are not a viable debt reduction option. According to the Congressional Budget Office, balancing the budget through tax increases would require each American household to pay $59,489 in new taxes over the next ten years.

Spending cuts are a necessity for both debt reduction and job creation. Businesses will be understandably hesitant to invest in new workers, equipment and construction as long as they fear their taxes could be increased at any moment to alleviate the burden of excessive government spending. By passing a long-term budget that reduces spending, Congress can announce emphatically that we intend to balance the budget through spending cuts, not through tax increases. This is why House Republicans have passed a 2011 budget that cuts $100 billion. Unfortunately, Senate Democrats rejected the plan and have only been willing to accept budgets covering two or three weeks at a time. Operating under a series of short-term spending bills just prolongs the uncertainty that continues to hamstring the job market, in addition to threatening a government shutdown that will cause real hardship to millions of Americans.

The media are portraying the ongoing budget battles as a political fight, but the consequences are much more serious than that. The spending cut debate is not about Democrats and Republicans -- it's about job creation and protecting our future.

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