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Cuts, taxes best way to reduce deficit, economists say

SHARE Cuts, taxes best way to reduce deficit, economists say

NEW YORK — The best way to reduce the federal deficit is through a combination of higher taxes and spending cuts, according to a group of economists.

The 236 members of the National Association for Business Economics recently surveyed say the country needs more fiscal stimulus through 2013, but by 2014 it should be time to throttle back. The reason for the delay: the sluggish nature of the country's economic recovery.

A majority of the economists favor extending payroll tax cuts, current marginal income tax rates and current tax rates for dividends and capital gains for most or all taxpayers through 2013. Deep tax cuts that were passed under President George W. Bush expire at the end of December unless Congress takes action. At the center of debate: extending the cuts for everybody or just households earning less than $250,000 a year.

When it comes to making those cuts permanent, the group is more split. Nearly three quarters think the payroll tax cut should not be made permanent. The group is almost evenly split about whether to make the tax cuts on income, dividends and capital gains permanent.

The biggest economic worry for the group was not how much to raise taxes or how to trim the budget. The problem cited was indecision: 87 percent of the economists believe that uncertainty about what direction Washington will take is holding back the economic recovery.

The survey on economic policies released Monday also forecast that short-term interest rates would remain at current levels for at least another year. The results are consistent with the last NABE semiannual survey, released in March.

A slight majority of respondents — 59 percent — said that current U.S. monetary policy was "about right." The percentage replying that monetary policy was "too stimulative" fell slightly compared with the percentage that held that same view in March, while the proportion answering that policy was "too restrictive" edged up.

The economists said the Federal Reserve should not buy more bonds to support and stimulate the economy, as it has in the last few years. The survey was conducted between Aug. 2 and Aug. 24, before the Federal Reserve announced a third round of bond buying on Sept. 13.