IMF Concerned Over Long-Term Implications Of US Budget Deficit

by Leroy Baker, Tax-News.com, New York

09 January 2004

Recent tax cuts have provided the United States with a timely boost to its economy, the IMF said on Wednesday, although the Washington-based institution warned that the rising fiscal deficit could have potentially damaging longer-term economic repercussions if not rectified.

To an extent, the IMF’s Occasional Paper praised the US government’s expansionary fiscal policy, noting that it will likely “provide extremely valuable short-term support to the U.S. economy, cushioning the extent of the downturn,” according to Charles Collyns, Deputy Director of the IMF's Western Hemisphere Department.

Nevertheless, the IMF remains worried that the government’s growing fiscal deficit “raises a number of longer term and multilateral concerns,” which have the potential to “exacerbate the global imbalances,” Collyns observed.

The IMF recommended that the US government implement fresh measures on both the tax and spending side in a bid to expand the tax base whilst keeping sufficient work incentives in place and simplifying the tax code. “Options here include reducing corporate and personal income tax preferences or possibly increasing consumption based taxes, including those on energy,” suggested Mr Collyns.

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