Tax cuts or government spending? Debate heats up over best way to grow the economy

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Battle over spending vs. saving

Best method for economic growth?

President Obama and Congress are starting an election year debate over how to best help grow the economy and create jobs -- tax cuts or government spending.

The president has always leaned toward more spending and barely mentioned the need to trim deficits in his State of the Union address.

"When it comes to the deficit," he said, "we've already agreed to more than $2 trillion in cuts and savings. But we need to do more, and that means making choices."

Paul Ryan, chairman of the House Budget Committee which is working on a new spending plan, told "Fox News Sunday," that the president has been "ducking" real solutions to the financial crisis for three years.

"He formed commissions and super committees, so he sort of outsourced the leadership only to decry their results," he said.

The president appointed the Simpson-Bowles Commission which called for cutting deficit spending by $4 trillion over 10 years, eliminating many deductions and lowering tax rates at the same time. But the president never acted on it.

Ryan argues that sort of comprehensive tax reform is a better approach than raising taxes the way the president wants to. Ryan believes the tax hikes would hit many small businesses, the greatest source of new jobs.

"I have a better idea," Ryan said. "Instead of raising taxes on producers and small businesses, why don't we stop subsidizing the wealthy? Stop the crony capitalism. Stop the corporate welfare, income test our entitlements. We get far more saving in the budget without choking off economic growth."

Whatever is done on taxes, some Democrats are wary of cutting spending by too much, too soon.

"when you're in the middle of a recession it's very dangerous to stop priming the pump. You know, you need to get escape velocity, get out of the atmospheric pull of recession, break loose and then let the economy go loose," said Jim Kessler of the centrist Democratic think tank Third Way.

The whole stimulus approach lost support after the president's first effort, which cost almost $1 trillion with interest and failed to reduce unemployment as he predicted or deliver the shovel- ready jobs he promised.

When that was brought up at a jobs council last summer in Durham, North Carolina, Obama laughed it off, saying "shovel-ready was not as shovel-ready as we expected."

For now, there is broad agreement on at least one more stimulus effort.

House Speaker John Boehner told ABC's "This Week" that the payroll tax credit the president called for already passed in the House as a year-long extension.

"We are in a formal conference with the Senate. And I'm confident that we'll be able to resolve this fairly quickly," he said.

The president has in mind some other stimulus spending items, which he intends to offset in part by eliminating the Bush tax cuts for those making more than $250,000 a year.

"We're poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans," he said in the State of the Union.

Paul Ryan argues that won't come close to covering Obama's spending plans.

"Let's just look at the math," he said. "All these tax increases that the president is talking about, they only cover 8 percent of his proposed spending increases. The other 92 percent of the president's spending increases are borrowed money."

Ultimately, the argument is indeed over whether growth and jobs can be created faster by tax cuts or by government spending. And that is an argument that only a presidential election may be able to settle.