IMF report says U.S. better get serious about deficit reduction

the national debt clock in times square at night

A report from the International Monetary Fund said the U.S. government deficit will bring serious economic consequences unless spending is cut more and taxes are raised higher. Flickr photo.

The United States is in no position to lecture other countries about their financial condition, especially after an evaluation from the International Monetary Fund (IMF). Most of the report tells anyone following the news what they already know: there’s an economic recovery in progress, but high unemployment is dragging down consumer spending. However, the IMF report also disagrees with the Obama administration’s outlook on the economy, and recommends some harsh deficit reduction measures to return the U.S. to financial health. Most of them will most likely never fly, politically.

IMF report praises stimulus package, pans deficit reduction efforts

Until now, the United States and China refused to let the IMF go beyond the general economic survey performed annually on all its members. But the U.S. has allowed the IMF to get more specific under the fund’s Financial Sector Assessment Program. The Associated Press reports that the IMF said the U.S. economic recovery “has proved stronger than we had earlier expected” and gave credit to the stimulus package, calling it a “powerful and effective policy response” on the part of the government. But was less positive about the outlook for the U.S. government deficit going forward.

Cut Social Security, tax gas, end home mortgage interest deduction

Concerning the U.S. government deficit, the IMF said that in the aftermath of the stimulus package, the Obama administration will have to raise taxes to get the U.S. deficit down to a manageable level. The Washington Post reports that IMF recommendations included cutting Social Security, ending the deduction for interest on home mortgages and taxing gasoline.

IMF says U.S. is too optimistic about deficit

The IMF report also said the Obama administration was overestimating U.S. economic growth and needed to trim the U.S. government deficit by hundreds of billions of additional dollars if its announced budget targets are to be met. Automated reports that those budget targets include halving the deficit by 2013 and stabilizing public debt at 70 percent of gross domestic product by 2015. However, the IMF projects that current policies will push the debt level up to 95 percent of GDP by 2020 and over 135 percent by 2030.

Obama administration disagrees with IMF report

The IMF assessment of the U.S. government deficit outlook is disputed by the Obama administration. In the Associated press article, a U.S. official said that the IMF had used forecasts for economic growth and interest rates that were too pessimistic compared to the consensus of most private forecasters, with the impact of inflating the U.S. government’s deficit problem over the next decade.

IMF deficit reduction recommendations political suicide

The IMF’s recommendations for the U.S. resemble those it made for European countries. The Post article said those recommendations are politically impossible. For example, allowing homeowners to deduct their mortgage interest payments from their income taxes has become an inalienable right to Americans. The IMF panned the deduction, saying it was part of a homeownership system that was “costly, inefficient and complex,” did not increase ownership rates compared with similar countries without the same tax incentives, and mostly benefited “the better-off.”

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