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The Daily Need

Should the deficit reduction ‘super-committee’ focus on jobs instead?

In a new and more confrontational tone, President Obama unveiled his proposals for roughly $3 trillion in federal savings over the next 10 years, insisting that the so-called Congressional “super-committee” tasked with cutting the deficit include tax hikes in its final package. Some policymakers, however, are proposing an even more inflammatory notion: Focus on jobs instead.

Sen. Jeff Merkley of Oregon first floated the notion in an interview with The Washington Post’s Greg Sargent last week. Merkley told Sargent he was afraid the deficit reduction committee would actually make unemployment worse, by withdrawing demand from the economy and taking even more money out of the pockets of business owners and consumers.

The notion arose out of an otherwise obscure policy debate going on in Washington at the moment: How to measure the savings generated by the Congressional super-committee. Some say the committee’s work should be judged against current law, or what’s on the books right now. Other says it should be judged against “current policy,” or what we can reasonably expect to be on the books over the next decade.

An example of how this works can be found in the debate over the Bush tax cuts. If you go by current law, the Bush tax cuts are set to expire at the end of 2012, so letting them expire doesn’t actually generate any new savings. However, if you go by current policy, you would count letting the tax cuts expire as new revenue, because the tax cuts are on the books right now (and likely to stay there if Republicans in Congress have anything to say about it).

Merkley is proposing a third, less conventional yardstick: Measure each of the super-committee’s proposals by how many jobs it would create or destroy. So, for example, the Bush tax cuts would get a price tag not in terms of how much savings it would generate ($3.6 trillion over 10 years, according to estimates) but how it might affect unemployment.

Multiple reports on the first round of economic stimulus have found that certain types of government spending — fiscal aid to states, investments in infrastructure, food stamps and middle-class tax cuts — saved or created millions of jobs. It stands to reason, then, that withdrawing that money from the economy might have the opposite effect.

“This will keep their feet to the fire and avoid a situation where their plan drives us into a deep recession or a depression,” Merkley told Sargent in describing his proposal. “We must not repeat the mistakes of Europe, where austerity has driven the economy further into the ditch rather than pulling it out.”

The Merkley approach may sound unconventional, but it’s been done before. All it takes is a request from Congress to the Congressional Budget Office. Some analysts, however, are proposing an even more inflammatory notion: The deficit reduction committee should not only measure its work against the unemployment numbers but actually include short-term deficit spending as part of its final package.

Demand-side analysts say austerity will only make the situation worse. Instead, they’re advocating deeper long-term cuts to health care programs like Medicare, paired with short-term deficit spending on projects like school construction. In essence, that’s what Obama is proposing, pairing his nearly $500 billion “American Jobs Act” with $3 trillion in savings that includes cuts from Medicare.

The entirety of the $500 billion in short-term spending proposed by Obama seems unlikely to pass, however, if it’s put to a full vote of the Congress. So some analysts are instead suggesting that the deficit reduction committee include some of those proposals in its final package, presenting the deal to the Congress as an all-or-nothing combination of long-term cuts and stimulus spending.

Such a proposal would likely score well on Merkley’s job-creation yardstick. Whether it actually has any chance of becoming law, however, is another question. “You would hope for the committee to provide some added deficits in the short run, made up by bigger reductions in the long run,” Chad Stone, the chief economist at the Center on Budget and Policy Priorities, said in an interview. “Now that’s pie in the sky.”