Warren Buffett says federal budget cuts aren’t too bad for economy

Berkshire Hathaway Chief Executive Warren Buffett, shown last year, says the federal government's across-the-board-cuts approach to deficit reduction is better than no deficit reduction at all.
(Paul Sakuma / Associated Press)

WASHINGTON -- Billionaire investor Warren Buffett is not a big fan of the automatic federal budget cuts that kicked in Friday, but he said they help reduce the deficit and shouldn’t hurt the economy too much.

The government is still running a deficit equivalent to about 6% of total economic output and that amounts to stimulus for the recovery even if there will be $85 billion less in federal spending in 2013.

“I think that’s still giving the economy quite a juice,” Buffett, the chief executive of Berkshire Hathaway Inc., told CNBC on Monday.


President Obama has warned of the economic impact of the so-called sequestration, which the nonpartisan Congressional Budget Office says will reduce growth by 0.6 percentage points this year and cause the loss of 750,000 jobs.

Quiz: How much do you know about the automatic federal budget cuts?

Buffett echoed Democrats and Republicans in Washington in describing the across-the-board, budget-cutting process as a “meat ax” approach to deficit reduction.

“It’s a very dumb way of attacking a very serious problem,” he said, noting that the automatic cuts don’t deal with the growth of Medicare, the main driver of long-term deficits.

But Buffett said the tax increases that began on Jan. 1 also were a meat ax approach because the expiration of the temporary 2% payroll tax break hit workers across the board.

“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,” he said.

“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.”

Such an approach to deficit reduction probably is better than no deficit reduction at all, Buffett said and he expressed hope that Washington politicians would find a way to improve on it and ultimately strike 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,” he said.


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