The International Monetary Fund said in a report Thursday that the U.S. economy “has turned in a remarkable performance over the past few years,” but added that there is now “a pressing need to reverse the ongoing increase in public debt-GDP ratio.”
“The U.S. is only the G-20 economy whose GDP level now exceeds the pre-pandemic level. This is good for the U.S. and it is good for the global economy,” IMF Managing Director Kristalina Georgieva told reporters at a news conference Thursday.
She also praised the fiscal legislation enacted in 2021 and 2022. “This legislation will have a lasting positive impact in reshaping the U.S. economy,” she said. “It needs to be complemented, however, with actions to put public debt-to-GDP on a decisive downward path through a broad range of policies that include raising tax revenues, addressing structural imbalances in the entitlement programs and looking for savings in non-entitlement spending.”
The IMF report warns that U.S. deficits and debt now present “a growing risk to the U.S. and global economy” and should be “urgently addressed.” It called for the government to run a surplus excluding interest costs of about 1% of GDP, compared with a current baseline deficit of about 3 percent of GDP.
To accomplish that shift over the course of several years, the IMF report said that the U.S. has a number of tax and spending options. “However,” the report said, “policies will need to go beyond finding efficiencies in discretionary, non-defense federal spending. Policymakers will need to carefully consider raising indirect taxes, progressively increasing income taxes (including for those earning less than US$400,000 per year), eliminating a range of tax expenditures, and reforming entitlement programs. Putting these measures in place will necessitate taking difficult political decisions over the course of multiple years.”
The report added that some of the savings from these changes should be spent on anti-poverty programs, including the reinstatement of Democrats’ enhanced Child Tax Credit and an expansion of the Earned Income Tax Credit for workers without children.
The report also called for lawmakers to take steps to avoid the annual spending fights and debt-limit showdowns that have become so common in recent years, saying that they “create systemic risks to the U.S. and global economy that are entirely avoidable.”
At her press conference, Georgieva acknowledged that there may be reasons for the United States to be concerned about global fair trade, but she urged American policymakers to consider negotiations and options other than imposing tariffs, which she said would be costly to both the U.S. and the global economy and lead to retaliation.
