Curb Health Costs to Cut U.S. Budget Gap, NABE Survey Says

August 23, 2011

Bloomberg

Alex Kowalski

About half of business economists said in a private survey that U.S. fiscal policy should be more restrictive in the next two years even with the economic recovery showing signs of faltering.

Almost six of every 10 members polled by the National Association for Business Economics said U.S. lawmakers should reduce the federal budget deficit mostly through spending cuts. Forty percent of the respondents said curbing health-care costs would probably be the most successful part of any such plan.

The debate over federal spending has taken on greater urgency since Standard & Poor’s this month downgraded long-term U.S. government debt for the first time. The cut reflected the failure of Congress and President Barack Obama to craft a budget plan “necessary to stabilize the general government debt burden by the middle of the decade,” the credit-rating service said.

The business economists’ survey was conducted between July 19 and Aug. 2, the day lawmakers agreed to put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred. The U.S. currently has $14.6 trillion in outstanding public debt and a $1.1 trillion deficit so far in the 2011 fiscal year that ends in September.

The semiannual survey was of 250 NABE members. The group, founded in 1959, includes business economists and those who use economics in their work.

Spending Cuts
About 56 percent of respondents said Congress should attempt to reduce the shortfall by only or mostly cutting spending, compared with 6.8 percent who said they prefer mostly or only tax increases. The remaining 37 percent favored an equal share of spending cuts and higher taxes, the survey showed.

While a plurality said containing health-care costs would probably be most beneficial, 25 percent said a tax-code overhaul would be the best solution. They’re not optimistic Congress is up to the task, as more than two-thirds expressed doubt any changes to the tax code would occur in the next 12 months.

About three-quarters of the respondents to the survey said a tax overhaul should raise additional revenue rather than be revenue-neutral compared with the current system.

As for monetary policy, a little more than half of the business economists said policy was “about right,” compared with a third who thought it was “too simulative.” After the survey ended, Federal Reserve policy makers pledged for the first time to keep the benchmark interest rate at a record low at least through mid-2013 to help spur growth in an economy that’s growing “considerably slower” than expected.

Forty-three percent of respondents said the Fed’s $600 billion monetary stimulus from November to June along with an earlier program aimed at spurring growth had been effective, while 33 percent said it was not.

There is neither a risk for deflation nor inflation, according to 36 percent of those surveyed. One in three said there’s a risk of inflation, while 8 percent said deflation is a risk.

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