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Business

Business leaders offer suggestions on budget crisis

Some favor taxes on high-income earners and paring government spending to resolve a looming budget crisis. But where to make the cuts poses tricky questions.

If Robert Pozen were in charge, the former mutual fund chief executive and economic chief under Governor Mitt Romney would cut tax deductions and work on trimming back Social ­Security benefits.

Darryl Settles, a Boston restaurateur and jazz promoter, says he would back President Obama’s call for raising taxes on higher incomes but with a ­caveat: “Here in Boston, $250,000 is not wealthy,” Settles said.

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With pressure bearing down on Washington to avoid the so-called ­fiscal cliff, business leaders locally and nationally are mulling how they would tackle the slew of tax increases and ­expense cuts set to take effect in the new year. Obama wants to raise taxes on the richest Americans; Republicans in Congress are resisting that. But they are willing to let the payroll tax break elapse, which will increase taxes for millions of ordinary workers.

The most difficult decisions, say business leaders who are versed in dealing with budgets, involve which expenses to cut. Those negotiations are politically charged, involving how money is spent on health care, ­defense, and Social Security.

“You’ve got to have a core of revenue and a core of long-term spending cuts,’’ said Pozen, who now lectures at Harvard Business School. “The spending cuts have to be bigger than the revenue,” or about a 3-to-1 ratio.

Pozen’s proposal revives a version of the Romney tax plan: Leave rates alone but cap deductions and loopholes. Pozen would set the cap at $50,000, higher than Romney had suggested, and would apply it to ­people who earn more than $200,000 a year. Someone earning between $200,000 and $500,000, for instance, would pay $8,524 more in taxes.

That would add up to about $750 billion in new tax revenues over 10 years, according to the Tax Policy Center, a nonpartisan research group in Washington. Next, Pozen and others say, that means looking for more than $2 trillion in expenses to cut. In his view, the government should target ­Social Security, phasing in decreased benefits for people under age 60 over time, while protecting seniors who are already at retirement age, as well as the lowest-paid earners.

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“You’d phase it in so it wouldn’t hurt the fragile economy,’’ Pozen said. “What the market’s looking for is some long-term fiscal discipline.”

Stephen Pagliuca, a Bain Capital partner and co-owner of the Boston Celtics, said he’d be in favor of letting the Bush tax cuts expire in 2013 for people who make over $250,000, himself included. He also believes there should be a “mix of entitlement ­reforms” on the expense side, such as changing the pay incentives in health care — moving away from fee-for-service to a more holistic model. He also would support a reduction in defense spending.

“We need an agreement that signals that we’re serious about dealing with our deficit and debt problem without it being too front-loaded,’’ said ­Pagliuca, a onetime Senate candidate. “The economy is slowly coming back, and I believe it would be a mistake to try and do too much, too fast.”

Settles, the owner of Darryl’s ­Corner Bar & Kitchen and founder of the BeanTown Jazz Festival, said raising taxes across the board could hurt the economy; he thinks the threshold should be closer to $1 million in ­income.

Increasing taxes for people who make $250,000 “would definitely hurt small businesses,’’ he said, noting that people who earn millions of dollars are living a different life than a business owner netting a fraction of that.

Still, Settles acknowledged, “You’ve got to raise taxes. It’s definitely going to affect me.”

Longer term, Pagliuca and others suggest that lawmakers should use the blueprint created under the Simpson-Bowles Commission to bring in more revenue and cut expenses across a wide array of budget areas. Former US senator Alan Simpson and Erskine Bowles, a former chief of staff for ­President Clinton, are now founders of a group called Fix the Debt, which is backed by chief executives and business people around the country.

Rosabeth Moss Kanter, a professor of business administration at Harvard Business School, said Obama and ­Congress ought to embrace the work that has already been done, rather than try to hash out a new compromise.

“Simpson Bowles has got a lot of business support,” Kanter said. “There’s a sense that ­everybody will have to sacrifice something and everybody will get to preserve something on both sides of the debate. The last thing we need is more committees, more reports, and nothing happening.”

Kanter said she feared that any effort to forge a new consensus plan could drag out and hurt the economic recovery, ­delaying investments by businesses that are sitting on cash and awaiting action from Washington. “Any action is better than no action,” Kanter said. “The biggest concern in uncertainty. Just do something, so businesses know what the rules of the game are.”

Stocks have been volatile since the election, rising and falling as investors try to read the tea leaves on progress in addressing the fiscal cliff. But there’s a growing tone of compromise in the air, even from the financial sector.

“We defer to the president, Congress, and the political process to determine exactly how to address these difficult ­issues,’’ State Street Corp. chief executive Jay Hooley said in a statement. Overall, he said he would “support a balanced ­approach, and believe both budget cuts and revenue increases will necessarily be part of the ultimate solution.”

Robert Weisman of the Globe staff contributed to this report. Beth Healy can be reached at bhealy@globe.com.

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