Warren Buffett, billionaire investor, isn’t the biggest fan of the automatic federal cuts to the budget that started last Friday. He did say they should not hurt the American economy at all, and that they will certainly help reduce the US deficit.
As of now, the US is currently running a deficit of around 6% of entire economic output. This amounts to creating a form of stimulus for the economic recovery by having $85 billion worth of less spending during the calendar year 2013.
“I think that’s still giving the economy quite a juice,” said Buffett (CEO of Berkshire Hathaway Inc.) to CNBC this past Monday.
President Barack Obama warned Americans of the overall economic impact of the supposed sequestration. Currently, the nonpartisan Congressional Budget Office tells us will slow US growth by 0.6 percentage points during 2013, and reduce jobs by 750,000.
Buffett is in agreement with both Republicans and Democrats in Washington when he describes the wide-ranging process of cutting the budget as a “meat ax” way to help reduce the national deficit.
“It’s a very dumb way of attacking a very serious problem,” said Buffett, in which he notes that automatic spending cuts do not slow the issues of the growth in Medicare, which are the main issue with long-term future deficits.
Buffett also said that the increase in taxes on January 1 were a meat ax approach as well, since the expiration of the payroll tax break of 2% (that was only temporary) affected workers in a wide range.
“We’re going to bring down spending and we’re going to bring up revenues and we may get there in fits and starts and everybody may scream each time we do it. But the deficit is going to come down,” said Buffett.
“We may be doing it in a meat ax way in this particular move,” he said. “We did it in kind of a meat ax way in terms of the revenues going up at the start of the year.”
Approaching deficit spending this way is most likely better than not doing anything at all, said Buffett. But he hopes that the politicians in Washington can come up with a way to improve upon it, and in the end come up with a broader deal.
“You may have to use the meat ax first and then people kind of look at their handiwork and say we have to do better than this,” said Buffett.