Does Debt Bill Actually Fix The Struggling Economy?

Lifting the debt ceiling and cutting more than $2 trillion in public spending is likely to have only a minor impact on the economy over the next two years, as almost all the cuts would be made in 2014 or beyond. Renee Montagne talks with David Wessel, economics editor for The Wall Street Journal and a frequent contributor to Morning Edition, about the impact to the economy.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

The Senate is set to vote today on the debt limit compromise that will avert a U.S. government default. The House passed the bill yesterday with a comfortable bipartisan majority. In just a moment, we'll hear from a liberal Democrat who voted against it. First, though, a look at whether this compromise does enough to conquer the deficit and whether it will help or harm the struggling economy.

For that, we turn to David Wessel, economics editor of The Wall Street Journal.

Good morning.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Renee.

MONTAGNE: So, David, let's start with the deficit. How far does this go towards fixing the problem?

Mr. WESSEL: It's a down payment.�The agreement does make some cuts to the annually appropriated defense and domestic spending bills over a decade. And it commits Congress to an up-or-down vote on a package of spending cuts and maybe tax increases that are going to be fashioned by this special 12-member committee of Congress.

But even if that committee proves successful, it won't be enough to put the federal budget on a sustainable course. And this whole package is much less than either Paul Ryan, the House Budget Committee chairman, or President Obama proposed in the spring or the Bowles-Simpson deficit reduction commission recommended. So it's something, but it doesn't take us to sustainability.

MONTAGNE: Well, let's talk about that committee of Congress - that bipartisan sort of super committee is what they're calling it. You know, one reason it could be different from all the other blue-ribbon commissions that have pondered the deficit is that it has got and Congress has got a gun to its head because of automatic cuts that would kick in if the committee can't agree.

Mr. WESSEL: Yeah. Essentially Congress put a gun to its own head. And what they said is this time it's not a bunch of outsiders. It's 12 members of Congress, half Democrats, half Republicans. And if they fail, or if Congress rejects the plan they come up with later this year, then the law provides for some pretty stiff spending cuts.

So there's a lot more pressure on this committee to succeed than any of the other deficit panels. And the leadership of the Congress is going to put the people on this committee. So one big thing to watch for is who gets put on the committee.

But it's really too soon to tell whether the committee will work and whether it will find the kind of compromise that President Obama and Speaker Boehner were talking about or whether it'll cobble together a whole bunch of little things in order to get to this $1.5 trillion target.

MONTAGNE: Well, there's one big thing that has caused a lot of contention, and that are - there's multiple - Bush-era tax cuts. Why have they proved so off limits?

Mr. WESSEL: Well, they're not off limits. The agreement is basically silent on that, because the president and the Republicans couldn't agree on what they want to do. The Republicans insist they'll keep the tax cuts or do some tax reform that does the same thing. And the president, who signed an extension of the tax cuts - both for middle income and upper income taxpayers - last December, now says he won't sign another extension of the upper income tax cuts. So this debate just wasn't resolved yet. And we'll have to see what happens.

MONTAGNE: Well, OK. Another big issue, of course, is the recovery. As Congress and the president have been haggling, the economy has not been looking very good. What will this deal do to that?

Mr. WESSEL: Well, you're absolutely right. The latest economic news is very bad, considering how weak the recovery was before. The spectacle of Congress and the president arguing about whether they could raise the federal debt ceiling so the government has enough cash to pay its bills clearly was a weight on consumer and business confidence and was beginning to infect the markets.

Removing that threat is a plus. But there's - and the spending cuts will be a minus - a very small minus, but every little bit hurts in an economy like this. And there's still a lot of uncertainty about what's going to happen�to taxes and so on that'll happen at the end of this year.

So basically it removes a big weight. It does nothing to help growth.

MONTAGNE: And nothing here aimed at helping the unemployed or getting employers to hire or in other ways helping to get the economy growing faster?�

Mr. WESSEL: No. Well, some Republicans argue that reducing the deficit and shrinking government spending will make room for the private sector to do better. The White House is telling us that it still hopes to extend the temporary tax cut on payroll taxes for another year beyond its expiration date. But it couldn't get those included in the deal, so it's hoping to somehow get those passed later in the year.

MONTAGNE: David, thanks very much.

Mr. WESSEL: You're welcome.

MONTAGNE: David Wessel is economics editor of The Wall Street Journal.

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