Deficit called greatest threat to economy

Courtney Schlisserman

Monday, March 21, 2005 | 11:11 a.m.

The U.S. budget deficit poses the greatest threat to economic growth in the short term, ahead of terrorism and the current account gap, according to a National Association for Business Economics survey.

In the longer term, rising Social Security and health care costs are the main problems facing the world's largest economy, the Washington-based economists group said in a statement. Sixty-nine percent of survey respondents said the Social Security system has serious problems and needs to be fixed now.

More than a fourth of NABE members -- 27 percent -- said government spending and fiscal deficits are the biggest threats to growth. The White House and Congress have pledged to reduce the budget deficit, which last month reached a record $113.9 billion. Still, most respondents -- 76 percent -- thought fiscal policy is too loose and 31 percent expect deficits to increase.

"NABE members, by a narrow margin, now believe that the federal deficit is a larger problem than terrorism" in the short run, David Wyss, chief economist at Standard & Poor's and one of the conductors of the survey, said in the statement. "Longer term, the costs related to the aging of the population dominate the challenges to sustaining economic growth."

Seven months ago, terrorism was cited by 40 percent of NABE members as the greatest threat, compared with 23 percent who said deficits. Terrorism fell to 24 percent in the latest survey, while 15 percent now cite the current account gap.

Twenty-three percent of survey respondents said health care spending is a major threat to growth over the long term. That was followed by 22 percent who felt the aging population and the widening ratio of elderly to younger Americans was a challenge.

President Bush has said the United States will soon pay out more in Social Security benefits than it receives in revenue, and wants to allow younger workers to invest part of their taxes in private accounts to bolster the system. Some Democrats oppose diverting the taxes, saying the program is a lifeline that keeps many Americans out of poverty.

NABE survey respondents said there is a only a 36 percent chance major Social Security reform will be enacted during the next two years.

"The panel is doubtful that this Congress will pass needed Social Security reforms," Wyss said. The group didn't specifically ask members about the issue in its August survey.