Growing deficit a concern, but Grassley, Harkin see different causes, solutions

Iowa's U.S. senators are expressing concern with new deficit forecasts projecting public debt will reach 62 percent of the Gross Domestic Product by the end of the year – the highest percentage since the end of World War II.

“This is very concerning,” Iowa Democrat Sen. Tom Harkin said after the new projection came out. “We've got to start reducing the deficit, but we need economic activity in this country.”

“It's another wake-up call for those of us in Congress,” added Republican Sen. Chuck Grassley.

Not surprisingly, they see different causes and offer dramatically different solutions.

Harkin called for more investment in the economy and chastised businesses for “hoarding” $1.8 trillion in cash rather than investing it in new equipment and new jobs.

“Some tough questions need to be asked why they are holding on to all that money without investing in new technology, renewable energy systems -- all the things that put people to work and that we need in this country,” he said.

Grassley, on the other hand, said the debt has been fueled by government spending – the economic stimulus bill, the bailout of Wall Street Fannie Mae and Freddie Mac and GM.

The Congressional Budget Office forecast that public debt will hit 62 percent of the GDP compares to 40 percent at the end of last year and a 40-year average of 36 percent, Grassley said.

Harkin wants Congress to extend unemployment benefits that have or are running out for hundreds of thousands of Americans.

The economic impact of unemployment benefits is second only to food stamps, Harkin said.

“We get about $1.63 for every $1 we put out in economic activity because people use it to make house payments, car payments, buy clothes, buy food, all those kinds of things. So it spins around a lot in the economy,” Harkin said.

Grassley favors extending unemployment benefits, but wants to be sure they are paid for so they don't contribute to the deficit problem.

“For two years the recession has been exploited for more government spending, higher taxes, and new entitlements from health care to long-term care to federalizing college grants and loans,” Grassley said.

Higher deficits will lead to higher interest rates and more borrowing from foreign sources, such as China, as well as reduced investment in the U.S. economy, Grassley said.