WASHINGTON — Nobel Prize-winning economist Franco Modigliani told a congressional panel today that federal deficits must be cut immediately and not to rely on what he called a "Mickey Mouse" balanced-budget plan now before a House-Senate conference committee.
He said Congress should not be afraid to raise taxes in the interest of trimming the deficit.
Modigliani, a professor at the Massachusetts Institute of Technology, told the Joint Economic Committee that the nation's $200-billion annual deficits cause "an insidious kind of damage" that does not suddenly appear. Instead, the economy "will get worse and worse as you move on" unless the deficits are cured.
"My strong recommendation to you is cut the budget now and cut it deeply," he said. "Above all, don't be trapped in the taboo that taxes must not be raised. . . . American tax rates are not particularly high."
Deficit Reduction Plan
The Senate passed and is now negotiating with the House on a deficit reduction plan proposed by Sens. Phil Gramm (R-Tex.), Warren B. Rudman (R-N.H.) and Ernest F. Hollings (D-S.C.).