Economists Oppose Tighter Fiscal Policies, Favor Mixed Deficit Reduction

Posted September 24, 2012 at 12:00am

A majority of economists in a new survey oppose fiscal tightening next year but want lawmakers to begin reducing the deficit in 2014 through a mix of spending cuts and tax increases.

Forty-five percent of the 236 economists surveyed by the National Association of Business Economists think fiscal policy should be more simulative in 2013. Twenty-two percent favor an unchanged policy, while 33 percent want Congress to start bringing down the budget deficit almost immediately.

The report released Monday found that 54 percent of economists think Congress should adopt austerity measures in 2014, when the economy is expected to grow more robustly. Few believe that lawmakers should reduce the deficit only through spending cuts or tax increases. About twice as many economists surveyed would prefer mostly spending cuts than mostly tax increases, but a plurality of 45 percent favor a deficit-reduction package that consists equally of spending cuts and tax increases.

Overall, the NABE survey suggests that lawmakers might be more eager to reduce the deficit than those who study the economy closely. Fiscal tightening is already set to occur next year as a result of automatic tax increases and spending cuts, and although most lawmakers would like to limit the full brunt of those measures, not many are arguing for no deficit reduction in 2013 and even fewer are calling for an expansionary policy.

Asked how Congress should handle the specific issues that it faces, 74 percent of the NABE economists said lawmakers should avoid the automatic spending cuts scheduled to take effect on Jan. 2, 2013.

The economists were more divided over tax policy. A slight majority said Congress should continue reduced tax rates on dividends and capital gains for all taxpayers through 2013. However, more economists said tax rates on ordinary household income above $250,000 should be allowed to increase (48 percent) than said that they should be extended for a year (46 percent). The remaining 6 percent favored the expiration of tax cuts on all income levels.

Enthusiasm among economists for higher taxes goes only so far. While 46 percent said an overhaul of the tax system should raise “slightly” more revenue than current policy, only 28 percent said that an overhaul should “significantly raise revenues.”

Whatever policy makers choose to do after the Nov. 6 election, they might be advised to act quickly — 87 percent of NABE economists believe that uncertainty over fiscal policy has been a drag on the economic recovery.