Economists' surprising election-year request: Raise taxes, please!
In a survey of economists who work mostly for banks and businesses, a majority said some additional tax revenue is needed, along with spending cuts, to reduce the federal budget deficit.
Economists who work for the nation's businesses have a request that sounds off-key in a US election year: Taxes should go higher.
They aren't asking Congress to raise taxes right away, but their argument in a newly released survey is that federal deficits need to be controlled, and that more revenue is part of the answer.
"The vast majority of survey respondents favors some combination of higher taxes and reduced spending to reduce the federal budget deficit," says a report from the National Association for Business Economics (NABE), which conducted the survey in August.
Even President Obama, while calling for higher taxes on high-income Americans, doesn't couch his argument in rhetoric, saying, "I like higher taxes." He explains that he's been a tax cutter in his first term, but that the richest Americans need to chip in more in tough times.
In the survey of 236 economists, who work mostly for banks and businesses, only one-third said that fiscal policy should be "tightened," as would occur with tax hikes, over the next year. But a majority said policy should become tighter starting in 2014.
When asked "How should Congress reduce the federal budget deficit?," participants were asked to pick from among five fiscal policy options. The most common response was "equally with spending cuts and tax increases" (selected by 45 percent), followed by "mostly with spending cuts" (31 percent), "mostly with tax increases" (14 percent), "only with spending cuts (9 percent), and "only with tax increases (1 percent).
On its face, the survey appears to show more support for Obama-style policies than for those advocated by the president's Republican challenger, Mitt Romney. President Obama, after all, has consistently and loudly called for a "balanced" approach that includes both spending cuts and tax hikes.
The survey found 90 percent of respondents supporting some blend of those two methods of reducing deficits, while Mr. Romney's espousal of "revenue neutral" tax reform lines up most closely with the 9 percent of economists in the survey who called for "spending cuts only."
At the same time, it's important not to interpret the survey too strongly as an endorsement for Mr. Obama from the economics profession.
The results do show a clear skepticism for the no-new-taxes appeal that has become a hallmark of Republican fiscal policy. But they also show a strong tilt toward spending discipline – a bigger emphasis for Romney than for Obama – with 40 percent of those surveyed in either the "mostly spending cuts" or "only spending cuts" camps. By contrast, only 15 percent favored mostly or only tax increases.
Survey participants weren't asked whether they would side with a particular political party, candidate, or policy proposal. Both parties have some history of failure when it comes to curbing federal deficits.
Many budget-policy experts are skeptical of whether Republicans, if holding the levers of both Congress and the White House, could really reduce federal spending to 20 percent of gross domestic product, as Romney has called for.
Similarly, on the Democratic side, Obama's tax-increase proposals are arguably more tangible than his spending-cut plans. Journalists at the fact-checking website Politifact assessed Obama's claim to have a plan to "cut our deficits by $4 trillion" during the next decade. Their analysis cited some $1.7 trillion in proposed revenue increases, alongside spending plans that rely heavily on automatic spending cuts in a 2011 law – a law that is widely viewed as a place holder rather than a long-term plan on spending.
The reluctance among economists to impose budget discipline in 2013 highlights another side of America's dilemma over government: what to do about the so-called "fiscal cliff."
At the end of the year, a large volume of tax cuts are scheduled to expire even as automatic spending cuts kick in. Economists, including those in the survey, worry that such sudden tightening of fiscal policy could cause a recession next year. "A majority of respondents would prefer that both monetary and fiscal policies become more stimulative or remain unchanged in 2013," says the NABE report summarizing the survey.