NABE Panel: Fiscal Policy Confidence Declines

Thirty-nine percent of NABE members believe that the current posture of fiscal policy is “about right,” down from 44 percent in March, but still slightly above the 35 percent who held that view in August of 2009. Three quarters of respondents do not think another stimulus package is necessary to arrest the economic slowdown and return to growth. Nearly three quarters rank promoting economic growth a higher priority than deficit reduction and strong majorities suggest there should be a governmental focus on employment improvements or support. A majority of respondents do not believe that any of the individual income tax cuts, dividends tax cuts and capital gains tax cuts should be allowed to expire.

Nearly equal shares of respondents feel current fiscal policy is about right (39 percent) or too stimulative (37 percent) with the remaining 24 percent calling it too restrictive. Respondents were asked what fiscal policy posture they prefer versus what they expect over the next 24 months. A majority of 60 percent prefer a more restrictive policy and 48 percent expect that will be the case. Another 26 percent prefer a more stimulative policy and 23 percent expect it. The remaining 14 percent who prefer no change from current posture were accompanied by 30 percent who expect no change.

The last stimulus package contained both spending and tax incentives and while respondents are strongly against another such generic stimulus as necessary, they are opposed to the expiration of the tax cuts put in place in 2003, although with some nuances in their opinions. Fifty-four percent of respondents are opposed to the expiration of the individual tax cuts with another 33 percent opposed except for those that apply to higher-income households. Likewise, 62 percent oppose the expiration of the capital gains income tax cuts and another 22 percent oppose except for higher-income households. Finally, 60 percent oppose the expiration of the dividend income tax cuts with another 22 percent opposed except for higher-income households. Just under 50 percent suggested that the estate tax be reinstated but with a higher exemption level and lower tax rate. Another 33 percent said it should not be reinstated at all.

Given the longer-term importance of reducing the deficit, the survey respondents offered insights into the value of various tactics that have been suggested to reduce the federal deficit. Forty-two percent of respondents identify implementation of comprehensive tax and/or entitlement reform as the tactic that will have the greatest impact on deficit reduction. Another 20 percent expect that a combination of tax increases and expenditure reductions would have the greatest impact. A resounding 81 percent think the bipartisan National Commission on Fiscal Responsibility and Reform will be unable to produce a credible plan capable of garnering congressional support.

Finally, two thirds of the respondents support the extension of the unemployment benefits recently enacted by Congress and three quarters think the government should do more to support employment growth. However, respondents’ top suggestion (supported by 41 percent) of the best way for the government to encourage increased employment was for government to give clarity on future regulation and tax policy. The second most popular answer, supported by 23 percent, was for government to give meaningful tax incentives for companies that increase hiring.

Table 1 Federal Deficit Reduction

Summary | Monetary Policy | Fiscal Policy | State & Local | International |
Print version (PDF) | Answers (PDF)

Should the individual income tax cuts be allowed to expire at the end of the year?

Should the capital gains tax cuts be allowed to expire at the end of the year?

Should the dividend income tax cuts be allowed to expire at the end of the year?

Should the estate tax be reinstated again after 2010?