The International Monetary Fund has given Americans a tough-minded analysis of the challenges we face in putting the country on a more responsible fiscal course. While a recent IMF report points to some bright spots in the U.S. economy and praises federal policies in some key areas, it offers less upbeat predictions than the Obama administration has issued. More belt-tightening, the international organization warns, will be needed in the next few years and beyond.
“The (U.S.) authorities’ commitment to halve the budget deficit by 2013, and intention to stabilize public debt at just over 70 percent of GDP by 2015 are welcome, although much remains to be done to achieve these aims,” the report says. “Given that we use less optimistic economic assumptions than the (Obama) administration, we see the need for more ambitious adjustment to stabilize debt than that envisioned by the authorities . . . “
The IMF praises the Obama administration’s plans for a freeze on non-security domestic spending. But it also cautions that more tax revenue will be necessary as well. The report bolsters The Concord Coalition’s long-standing contention that both spending cuts and tax increases will likely be needed to get the federal government’s finances back on track.
IMF officials suggest getting rid of some tax deductions and believe the beloved mortgage interest deduction in the U.S. tax code deserves particularly close scrutiny. Not only do tax breaks for home ownership drain large amounts of federal revenue, the IMF notes, but they “largely benefit the better-off.”
True enough. But this would be bitter medicine indeed for American homeowners even in the best of times, let alone when millions of them are already struggling to pay their monthly mortgage checks – often on mortgages than now exceed the value of their homes.
But that’s not all. Americans, the IMF says, should be considering a national consumption tax (don’t hold your breath to hear a second on that one from your congressional representatives), higher energy taxes and a “financial activities tax.” And these sorts of sacrifices would be just to get us to 2015 in reasonably good shape.
Looking beyond 2015, the IMF says, “the aim should be to put public debt firmly on a downward path to rebuild the room for fiscal maneuver.” In other words, we don’t want our hands tied by debt the next time we face, say, a near-meltdown of the U.S. financial system. That won’t be easy, but it would be the wise thing to do.