Friday, August 13, 2010
Economists are getting more pessimistic about the strength of the U.S. recovery, but they don't think policy makers should do anything more to support it, according to the latest Wall Street Journal forecasting survey.
The 53 surveyed economists, not all of whom answered every question, offered a bleak picture of tepid growth and high unemployment. ...
The economists, though, generally didn't support the idea of ending Bush-era tax cuts, which will expire at the end of this year unless Congress acts. Just three respondents said that the tax cuts on individual income should be allowed to expire for everyone. Thirty-two economists said they should all be extended, while 11 said they should be extended for people making less than $250,000 a year—the policy option backed by the Obama administration.
Many of the economists said any extension should be temporary while the recovery still is struggling to gain traction. But amid concerns about the deficit, 23 respondents said the extension should be offset with spending cuts or other taxes. "It is irresponsible nonsense to claim that tax cuts 'pay for themselves,' " said Nicholas Perna of Perna Associates.
Although concerns about the deficit persist, more than half of the respondents—28 economists—don't think the U.S. will adopt a value-added, or consumption, tax over the next decade. "Political pressure against is too strong," said David Wyss of Standard & Poor's Corp.
But some economists see a VAT as one of the few ways to bring down long-term deficits. "It is not politically feasible to slow federal spending growth enough to bring the debt accumulation to a sustainable pace. A VAT is a clever way to increase tax revenues paid by middle- and lower-income households without increasing their marginal income-tax rates," said Paul Kasriel of Northern Trust.