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Economist Mark Zandi: GOP plan would cost 700,000 jobs

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The House Republican plan to cut about $61 billion from the federal budget in the next seven months could cost about 700,000 jobs through 2012, according to a new report from Moody's Analytics chief economist Mark Zandi.

Republicans are hitting back at the report, arguing that Zandi -- an advocate of the Democrats' 2009 economic stimulus package -- cannot be trusted as an objective economist. Zandi has advised both Democrats and Republicans, including Republican Sen. John McCain during his 2008 presidential bid.

"The fact that a relentless cheerleader for the failed 'stimulus' - which the Democrats who run Washington claimed would keep unemployment below eight percent - refuses to understand that ending the spending binge will help the private sector create jobs is sad, but not surprising," said Michael Steel, a spokesman for House Speaker John Boehner.

House Majority Leader Eric Cantor also pointed to Zandi's affiliation with the stimulus package, noting that the stimulus failed to keep unemployment levels as low as promised. (The stimulus did manage to save or create millions of jobs.)

Zandi's analysis, first reported by the Washington Post, predicts that the GOP budget plan would reduce economic growth by .5 percent this year and by .2 percent in 2012.

"Significant government spending restraint is vital, but given the still halting economic recovery, it would be counterproductive for that restraint to begin until the economy is creating enough jobs to bring down the still very high unemployment rate," Zandi writes in his report.

Similarly, Goldman Sachs released a report last week predicting the Republican plan would lower economic growth by up to 2 percentage points this year.

Democrats have seized on the fact that Republican leaders have acknowledged that their plan to cut spending -- by its very definition -- will at least cut some federal jobs. "So be it," Boehner said earlier this month when asked about federal jobs that would have to be eliminated under their proposal.

Boehner later toned down his remarks. "Listen, I don't want anyone to lose their job, whether they're a federal employee or not," he said. The speaker added, however, that Congress has to make "tough choices" given the current state of the economy.

Not all economists agree with the reports from Zandi or Goldman Sachs. Stanford University economist John Taylor today published a rebuttal to their analyses.

"[T]here is no convincing evidence that H.R. 1 will reduce economic growth or total employment," he wrote. "To the contrary, there is more reason to expect that it will increase economic growth and employment as the federal government begins to put its fiscal house in order and encourage job-producing private sector investment."

Reducing government spending will encourage private investment, he argues. Furthermore, Taylor argues that the Zandi report confuses budget authority with budget outlays -- in other words, the cuts won't be immediate.

Democrats have refused to accept the Republican plan for dramatic cuts, leaving Congress deadlocked over federal spending for the rest of the fiscal year. If Congress does not agree on a plan by March 4, the federal government would shut down. For now, Democrats and Republicans appear to be nearing a deal for a short-term funding measure that would keep federal operations running for an additional two weeks.