YAHOO FINANCE - Spending Showdown: Budget Solutions, "But We Have to Act Now"

Congress was closed for business this week for an extended President’s Day recess. The government could face a real shutdown one week from today if Democrats and Republicans cannot find middle ground on how to fund the government for the rest of this year.

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Most Americans do not want the lights turned off in Washington, according to a new USA Today/Gallup Poll. Sixty percent of people want the parties to pass some plan, even if it is not perfect for either side. Thirty-two percent of people want their party to stand strong and not compromise.

Glenn Hubbard, dean of Columbia’s Business School, is hopeful there will not be a shutdown like we saw during the Clinton years. “I think the two sides are far apart,” he says. “But there is a real sense of compromise that there should be spending restraint and I think they will pull it off.”

The newly elected Tea Party candidates have a lot to do with the divide and debate in Congress over the budget.  The fiscally conservative candidates campaigned on a promise to slash $100 billion from this year’s budget.  The GOP fell a little short on that promise, yet was able to get $61 billion in cuts passed last Saturday in the House.

That proposal, or anything similar, has little chance of passing a Senate led by Democrats, who agree the budget needs to be reigned in, but do not agree with level of austerity proposed by the GOP.

A new report by Goldman Sachs seems to side with the Democrats' perspective. “The Republican plan to slash government spending by $61B in 2011 could reduce U.S. economic growth by 1.5 to 2 percentage points in the second and third quarters of the year,” The Financial Times reports.

Senator Charles Schumer (D-NY) says that's evidence enough that the “House Republicans’ proposal is a recipe for a double-dip recession.”

Fear the Long-term

Hubbard definitely believes the time for change -- as it relates to the U.S. budget -- is now, but says both sides and President Obama are looking in all the wrong places.

“The longer we wait to change, the bigger the change has to be,” he tells Aaron in the accompanying interview. “[Washington] is focused only on the near-term [while] the really big issues for the country have to do with our long-term fiscal challenges, principally in Social Security and Medicare.”

The U.S. faces a $1.5 trillion budget shortfall this year, according to Congressional Budget Office estimates.  If Congress does not act to stop the country’s spiraling deficits, by 2021 our total debt load will reach $18 trillion and account for 77 percent of Gross Domestic Product.

Baby steps are all it would take to help us now, says Hubbard, who was President George W. Bush top economic advisor in his first term.

Small measures like increasing the retirement age and means testing Social Security benefits would go along way to fixing our long-term issues and helping our economy in short-term, Hubbard says.

“We could do it gradually, and we could make sure that no body but upper middle income and higher income people feel the pain,” he says. “We can do that, but we have to act now.”