Fiscal Policy

Forty-four percent of survey participants report that the stance of current fiscal policy is “about right,” an increase from the 35 percent who held that view in August 2009 and the highest percentage since 2007. Among those who disagree, a much larger proportion think that policy is too stimulative (39 percent) compared to those who feel that it is too restrictive (16 percent). Forty-eight percent of respondents indicate that fiscal policy should be more restrictive over the next six months, while 68 percent expect that fiscal policy will be more restrictive two years from now.

Given the answers regarding the appropriate stance of fiscal policy, it is perhaps not surprising that 71 percent of the NABE Economic Policy Survey Panel do not believe that another fiscal stimulus package is warranted at this time. Eighty-three percent believe that GDP is currently higher than it would have been without the 2009 stimulus package (ARRA). However, only 53 percent of respondents view the 2009 stimulus package as a positive factor for the economy over the longer term, likely reflecting the negative impact of substantial and growing federal budget deficits and debt.

One of the more significant fiscal policy decisions to be decided by the current Congress is the treatment of tax provisions (included under the tax-cut legislation enacted earlier this decade), which are due to expire at the end of this year. A substantial majority of economists in the survey believe that Congress will act to extend many of these provisions for middle-income households but will allow taxes to increase for those in the top income bracket. At the same time, most survey respondents do not view this outcome as best for the US economy, with the majority of the panel expressing a preference for retaining the current levels of personal marginal tax rates, as well as those on dividends and capital gains.

Specifically:

75 percent of respondents indicate that lower marginal income tax rates will likely be extended for all taxpayers except those in the top income bracket. A plurality—45 percent—indicate that maintaining lower marginal rates for all taxpayers would elicit the best economic outcome.
38 percent of economists think that lower tax rates on dividends and capital gains will not be extended. Another 38 percent believe that lower tax rates on dividends and capital gains will only be extended for those taxpayers outside the top income bracket. Almost two thirds of the panel (65 percent) feel that extending lower rates on dividends and capital gains across the board would produce the best economic outcome.
Three percent of economists participating in the survey believe that the estate tax will be eliminated. Thirtythree percent think that eliminating the estate tax would be the best economic outcome. Most respondents, however, think that the estate tax will return to rates and exemption levels from 2009 or earlier.
77 percent of respondents think that Congress will continue to respond to the tax burden of the ever-growing share of households paying the Alternative Minimum Tax (AMT) by annually providing a “patch” to increase exemption levels. More than half—51 percent—of the economists surveyed think that the best economic outcome would be to implement a permanent fix, which would index exemption levels to inflation.

The proposal viewed as the most effective means of spurring hiring and creating jobs was the elimination of capital gains taxes on small business investment. A broad-based reduction in corporate income taxes is seen as the second most effective option. Mandates for lenders to increase the flow of credit to small business are viewed as the least likely to stimulate job growth.

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