Economists' advice for Obama: Avoid 'fiscal cliff'

AP News
Posted: Nov 07, 2012 1:54 PM
Economists' advice for Obama: Avoid 'fiscal cliff'

WASHINGTON (AP) — So what's the first thing you'd do for the economy if you were president?

The Associated Press posed that question to more than a dozen leading economists. Asked to name the one step they'd push most urgently if they were the newly re-elected President Barack Obama, the economists sounded a few common themes:

Reduce the budget deficit. Cut tax rates. Do both, somehow.

Above all: Sidestep the "fiscal cliff." That's the package of tax increases and deep spending cuts that will take effect in January unless Congress reaches a budget deal by then. The resulting crisis could tip the U.S. economy back into recession next year.

Another popular recommendation is to embrace the bipartisan deficit-reduction plan backed by former Sen. Alan Simpson and Erskine Bowles, a former White House chief of staff. The two men, co-chairmen of a deficit-reduction commission, recommended roughly $1 in tax increases for every $3 in spending cuts.

Here are suggestions from the economists the AP surveyed:


"Strongly endorse the Simpson-Bowles plan as a template for deficit reduction. It is a sensible plan for reducing the deficit without shocking the economy."

— Ethan Harris, economist, Bank of America Merrill Lynch.


"Introduce an 8 percent federal sales tax, eliminate all deductions and use the extra revenue to reduce corporate tax rates and marginal income tax rates for those making less than $100,000 per year."

— Paul Ashworth, chief US economist, Capital Economics.


"Develop a credible bipartisan deficit-reduction plan that can be passed."

— Diane Swonk, chief economist, Mesirow Financial.


To lay the groundwork for another economic stimulus package, "I would explain to the public how the collapse of the housing bubble left a huge gap in demand that can only be filled by a government deficit, at least in the short term. The public has to understand that, just as was the case in the Great Depression, when the economy collapses the government must expand to sustain demand."

— Dean Baker, economist, Center for Economic Policy and Research.


"The economy needs pro-growth tax reform. That is the single most important action. As low a marginal tax rate as possible on the broadest tax rate possible."

— John Ryding, economist, RDQ Economics.


"I assume that abolishing Congress is not an option. ... Job 1 would be the passage of a long-term Simpson-Bowles-type program."

— Joel Naroff, president, Naroff Economic Advisors.


"Repeal the (Obama health care law). ... The Act has raised policy uncertainty in the economy and has companies already working on maneuvers to avoid having to provide health insurance - limiting the number of employees and/or reducing hours below full time. Thus the Act will slow job creation and worsen an already disheartening underemployment problem."

— Sean Snaith, economics professor, University of Central Florida.


"Bulldoze the fiscal cliff down to a manageable size. Make the current income tax rate permanent for all rates 33 percent or lower and raise the top tax rate to 38 percent for 2013. Increase capital gains and the maximum dividend tax rate to 20 percent for 2013. ... Cut $50 billion in spending in 2013.

— Stuart Hoffman, chief economist, PNC Financial.


"Immediately negotiate a grand bargain with Congress that scales back the fiscal cliff, increases the Treasury debt ceiling and lays out a credible deficit reduction plan resulting in a falling debt-to-GDP ratio by the end of the decade. Such a deal would buoy confidence, jump-starting stronger investment and hiring. ... The only missing ingredient for a stronger economy is clarity on how we will address our fiscal problems."

— Mark Zandi, chief economist, Moody's Analytics.


"I would do everything in my power to extend the Bush tax cuts for the foreseeable future. The payroll tax will be going back to 6.2 percent in January. This alone will pull more than $120 billion out of disposable income and depress consumer spending. The Medicare tax is going up ... and it will be imposed on wages and salaries and investment income. To let the Bush tax cuts expire in this environment would threaten the fragile recovery and possibly push the economy into another recession."

— Albert Niemi, Dean of Cox School of Business, Southern Methodist University.


"I'd cut tax rates and get rid of deductions."

— William Dunkelberg, chief economist, National Federation of Independent Business.