US should raise taxes to help fix deficits, say business economists

At a time when Republicans in Congress are digging in their heels against raising more federal tax revenue, private-sector economists are sending an opposite signal in a new poll.

Some three-quarters of economists who do forecasting for the private sector say tax revenue should rise as part of efforts to tame unsustainable budget deficits, according to the survey released Monday by the National Association for Business Economics (NABE).

By contrast, 19 percent said tax reform should be done in a "revenue-neutral" way, and 5 percent said reforms should reduce tax revenues. About 250 business economists participated in the NABE survey.

In recent high-stakes negotiations in Congress to raise the national debt limit and reduce future US deficits, most Republican lawmakers said they will not support deficit-reduction plans that raise new tax revenue. The fix, they argue, should come wholly through spending cuts.

By contrast, the economists in the NABE survey, conducted the two weeks just before Washington's Aug. 2 achievement of a debt deal, took a more complex and centrist view of the nation's fiscal problems. While many of them favored spending cuts, a majority argued that the challenge of federal deficits stems from low tax revenue and the recession's after-effects, as well as from untamed spending habits.

That helps explain why many economists support the idea of tax reform that enhances federal revenues – as was also favored by President Obama's bipartisan fiscal commission. Among survey respondents who wanted to see both spending cuts and tax increases, 44 percent preferred a package based primarily on spending cuts, according to Monday's NABE report. Some 37 percent said fiscal reforms should use equal parts spending cuts and tax increases.

Many finance experts have argued in recent months that tax reform could be pursued in a way that simplifies the tax code and keeps rates low – perhaps even reducing some tax rates – while also raising more revenue by closing loopholes and reducing deductions.

But some economists worry that efforts to expand tax revenue in the near term, or to cut federal spending too fast, could damage a weak economic recovery. Nearly 37 percent of the economists said fiscal policy should aim to provide more stimulus to the economy in the next two years, rather than less (as would occur with tax hikes or spending cuts).

Although most of the economists tipped against the Republican Party's argument on tax revenues, they also appeared to contrast with Democrats on some issues. Asked what steps would most likely help reduce future deficits, the most popular choice in the survey (selected by 40 percent of respondents) was "contain health care costs in Medicare and Medicaid." In the recent debt talks, many Democrats opposed proposals that would reduce those entitlement benefits.

On Federal Reserve policy, most of the economists said current Fed policy is "about right," while about one-third argued that the Fed is being too loose, or stimulative. Six percent see the Fed as too restrictive.

For his part, Mr. Obama has said he is open to deficit-reduction plans that emphasize spending cuts over tax hikes. He has proposed that more tax revenue be raised primarily from the highest-income Americans.

The large percentage of survey voices supporting higher tax revenues may be surprising, but it's also a reminder that finance experts see the difficult fiscal choices ahead, often involving trade-offs between unpopular program cuts and unpopular tax hikes.

Also, although some business groups support generally conservative economic policies, members of the economics profession are politically diverse in their views.