Wall Street to lawmakers: Here’s how to fix the deficit
Wall Street investors have a novel suggestion for Beltway policymakers squabbling over deficit reduction: Compromise.
A clear majority of analysts and portfolio managers in a new poll say Washington should get behind a package that mixes tax hikes with spending cuts in order to stem the tide of red ink.
Investors are in even stronger agreement about the need to act. Seven in ten say such a deal would improve the short-term outlook for the U.S., and nine in ten see it goosing both the long-term outlook and global confidence in our economy.
The survey — conducted by the global advisory firm FTI Consulting and released exclusively to Fortune — reveals an investor class at odds with a Republican party that has come to view any tax increases as anathema.
“They tend to be as a population more fiscally conservative than the general public, but they’re not as fiscally conservative as the most conservative elements of the Republican party,” said Brent McGoldrick, who coordinated the poll. “You see the pragmatism of investors coming through here.”
In fact, on this issue at least, the 56% who favor a mixed approach are largely aligned with President Obama. Last spring, he embraced the goals of his deficit commission, which laid out a path to cutting $4 trillion over ten years by cutting three dollars of spending for every dollar in new tax revenue raised. And he tried to negotiate a breakthrough deal over the summer, but talks with House Speaker John Boehner (R-Ohio) fell apart over the tax piece.
Broader popular opinion has shifted since, in line with investors’ views. The public now gives the President a 9-point edge over Congressional Republicans on the issue, after dividing on it last spring.
Progress toward a so-called grand bargain has stalled since the Congressional super committee failed in the fall to broker an agreement. And with Washington now on election-year footing, there’s not much hope for action in the coming months. Still, small, bipartisan groups in both chambers are huddling to put proposals into legislative language so those frameworks will be ready to move as soon as their colleagues summon the political will to tackle the issue again.
In the meantime, the FTI poll shows investors are deeply skeptical of any new stimulus measures if they’d mean more government spending and higher deficits. Instead, four in five say tepid economic growth owes directly to low confidence that policymakers will get serious about our fiscal challenges, so deficit reduction is even more important than stimulus to promote the recovery now.
Respondents, ranking the importance of deficit reduction to their portfolio companies, placed it fourth — behind industry regulation, corporate taxation, and healthcare, but ahead of energy, labor policy and trade policy.
The poll surveyed 260 American investors from 228 firms managing $2.6 trillion in total equity assets. It was conducted online from December 9-19, 2011.