Deficit survey: Raise taxes, cut spending

Raising taxes and cutting spending are the best way of reducing the U.S. budget deficit, a survey of applied economists, academics and policymakers indicates. Eighty-eight percent of respondents to a National Association for Business Economics survey favor some combination of higher taxes and reduced spending, with the panel slightly tilting toward spending cuts, the survey released Monday indicated. Of the 88 percent, 39 percent say Congress should reduce the federal budget deficit mostly with spending cuts, the same percentage say Congress should do it equally with spending cuts and tax increases, and 10 percent recommend doing it mostly with tax increases, the survey found. Eleven percent say Congress should reduce the deficit only with spending cuts and 1 percent say Congress should reduce it only with tax increases. Looking at the percentages a different way, about half suggest Congress reduce the deficit only or mostly through spending cuts, while 11 percent advocate reducing it only or mostly through tax increases. The Obama administration projects the federal deficit to reach $1.3 trillion when the budget year ends Sept. 30. That would nearly match last year's imbalance, even though the deficit was slightly smaller through the first five months of the budget year than the previous year, the Treasury Department said two weeks ago. The government ran a record $1.41 trillion deficit in 2009 and a $1.29 trillion gap in 2010. Last month, a Gallup survey indicated 79 percent of voters said the budget deficit was extremely or very important in influencing how they'll vote for president. Of respondents to Monday's NABE Economic Policy Survey, 53 percent say they'd prefer fiscal policy to become more restrictive than it is now over the next two years, and 58 percent say they expect it will become more restrictive. Thirty-one percent say they'd prefer fiscal policy to be more stimulative, while 14 percent expect it to be more stimulative. Fiscal policy refers to using government taxes and spending to influence the economy. A restrictive fiscal policy takes actions to reduce the deficit, including raising taxes. A result is usually reduced demand and slowed economic growth, economists say. A stimulative, or expansive, fiscal policy focuses on increasing demand and stimulating the economy. A result is usually lower taxes and an increasing deficit, economists say. Fiscal policy contrasts with monetary policy, which attempts to stabilize the economy by controlling interest rates and spending. Fifty-eight percent of NABE Policy Survey respondents say the Federal Reserve's monetary policy is "about right," the survey indicated. About 35 percent say the policy is "too stimulative," while 7 percent consider it "too restrictive." Half the respondents say they'd prefer monetary policy to remain "unchanged" over the next 12 months, while 9 percent want it "more stimulative." NABE's semiannual Economic Policy Survey of 259 members was taken Feb. 15 through March 6. Its release coincides with the organization's economic-policy conference in Arlington, Va., whose speakers Monday were to include Fed Chairman Ben Bernanke and Congressional Budget Office Director Douglas Elmendorf, working under House Speaker John Boehner, R-Ohio.