Lawmakers are warned: Inaction hurts economy

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- Congress needs concrete plans for tax cuts, stimulus and deficit control because inaction dooms the economy to slow growth, a panel of economists told lawmakers on Tuesday.

The economists, who testified before the Senate Budget Committee, had gloomy outlooks for growth in 2011, offering annual GDP forecasts ranging from 3% to 4%.

"It's a disappointing recovery," said Simon Johnson, who teaches at the Massachusetts Institute of Technology's Sloan School of Management. "It's probably one of the slowest recoveries we've had since World War II."

Joel Naroff, president and founder of Naroff Economic Advisors, predicted even slower growth of 2% to 2.5% -- if Washington fails to make major "changes in fiscal or monetary policy."

Johnson and Morgan Stanley economist Richard Berner agreed that Congress needs more immediate policy action, especially in reshaping the tax system.

"Market participants are used to thinking that political gridlock is good because it keeps politicians from interfering with the marketplace," said Berner. "Well, today gridlock is more likely to be bad for markets as our long-term economic problems require solutions with political action.

The problem is that it's possible Congress won't tackle big decisions -- such as extending the Bush-era tax cuts -- until after the November elections.

"Most people don't think you're going to see the legislative outcome finished on this until after the election," Treasury Secretary Tim Geithner said Tuesday on ABC.

Berner suggested that uncertainty over tax policy -- as well as uncertainty on how health care and Wall Street reforms will play out -- played a role in the sluggish consumer confidence levels of the past few months.

"That is not the only reason, but I think it's an ingredient," Berner said.

Also, the economists generally agreed that the the slew of tax cuts that went into effect with the 2009 Recovery Act, including the credit that boosted biweekly paychecks by roughly $15, did very little to juice the economy.

"You probably could have cut taxes to households and businesses all you want, but the return to those tax cuts would have been minimal because businesses and households were looking to survive rather than spend in any shape, form or manner," Naroff said. To top of page

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