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Supply side economics underpins Ryan budget roadmap

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Bob Moon: Budget negotiations to avoid a government shutdown at midnight Friday remain stalemated for yet another day. President Obama warned today that a shutdown would harm the economy’s fragile recovery.

Meanwhile, people are looking more closely at the longer term roadmap for deficit reduction released yesterday by House Republicans. Our D.C. bureau chief John Dimsdale reports the Republican budget for 2012 includes some rather rosy economic assumptions.

John Dimsdale: House Budget Committee Chairmain Paul Ryan said it yesterday and we played it. Here it is again.

Paul Ryan: If you tax something more, you get less of it. If you tax something less, you get more of it. We don’t want to tax jobs more. We want them to be taxed less so we can get more of them.

Ryan’s budget predicts less government spending and less taxation will drastically shrink unemployment, rejuvenate the housing market and generate billions in extra government revenue. That forecast comes from the conservative Heritage Foundation, which adheres to Ronald Reagan’s supply side economics: Get the government out of the way and the economy will flourish.

Howard Gleckman: I think it is an optimistic analysis of what is likely to happen.

The Tax Policy Center’s Howard Gleckman says less borrowing definitely helps the economy. As for smaller government?

Gleckman: That’s a much more theological question and I don’t think there’s a clear answer to it.

The Bush tax cuts in 2001 didn’t generate the millions of new jobs supply siders predicted. But liberal stimulus programs don’t always work either. And the Urban Institute’s Eugene Steurele says now is a dangerous time to experiment with either extreme, given huge deficits.

Eugene Steurele: Neither one is going to be able, I think, to argue any more that just cutting taxes that raise deficits are good or that increasing spending and raising deficits is good — that’s part of the reason we’re in the trap we’re in.

He says the growing view here is that both higher taxes and smaller government will be needed to spring that trap. And that’s just what the last few deficit review commissions have been saying.

In Washington, I’m John Dimsdale for Marketplace.

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