The American finances are deep in the red and going much deeper. With every day of war and reconstruction in Iraq, American federal coffers are taking a hit. But the table was set for exploding deficits well before the war in Iraq, as a result of an already stalled economy and huge tax cuts. As the deficit grows by the day, who will be paying the price and what sectors of the economy will take the hit?

Jeff Madrick, contributing economic columnist for the New York Times and editor of Challenge Magazine, says that the current unstructured deficit spending and tax cuts are hurting rather than helping the American economy. When the war and reconstruction costs in Iraq are factored in, he predicts that economic growth will slow down further, personal incomes will keep falling, and social programs such as Medicare and Social Security will suffer severe cuts.

Kevin Hassett, Resident Scholar and Director of Economic Policy Studies at the American Enterprise Institute, says that cuts in social programs rather than tax raises will have to happen in order to counter the consequences of the growing federal deficit.

Click the “Listen” link to hear more about the growing American federal budget deficit and who will have to pay the huge price of its negative impact on the economy in the future.

Guests:

Jeff Madrick, contributing economic columnist for the New York Times, editor of Challenge Magazine and author of the article “Why Economies Grow: The Iraqi Time Bomb?”

Kevin Hassett, Resident Scholar and Director of Economic Policy Studies at the American Enterprise Institute

Edward McKelvey, Senior Economist at Goldman Sachs