The IMF has urged the US to “urgently” address its mounting fiscal burden, as it took aim at the tax plans of both presidential candidates just hours before their first electoral debate.
The fund said projects from its annual Article IV health check of the US economy showed the debt-to-GDP ratio hitting 140 per cent by 2032 — much higher than its current level of 120.7 per cent.
The surge, off the back of successive projected fiscal deficits in the coming years, would leave the debt burden in excess of previous highs in the aftermath of the second world war.
“Such high deficits and debt create a growing risk to the US and global economy, potentially feeding into higher fiscal financing costs and a growing risk to the smooth rollover of maturing obligations,” the fund said in its Article IV consultation. “These chronic fiscal deficits represent a significant and persistent policy misalignment that needs to be urgently addressed.”
The IMF’s warnings come after the Congressional Budget Office, the US’s official fiscal watchdog, predicted earlier this month that the deficit was likely to hit $1.9tn this year, or about 7 per cent of GDP, up from a February estimate of $1.5tn.
Economists and investors have grown increasingly concerned that neither US President Joe Biden nor his Republican rival Donald Trump are prepared to do enough to bring rampant spending under control. The two are set to meet in Atlanta on Thursday evening for the first debate of the current election cycle.
The fund said both candidates needed to “carefully consider” a range of tax rises — including on incomes for those earning under $400,000 a year, who Biden has pledged will not pay more tax should he secure a second term in the White House.
Trump’s tax plans, which include making permanent a series of cuts he introduced in 2017, are expected to add between $4tn and $5tn to US deficits over the coming decade.
IMF managing director Kristalina Georgieva said that strong growth in the US meant that the country had the space to address its fiscal burden.
“There is a temptation to postpone decisions related to debt and deficits for the future, rather than pay them when the sun is shining and conditions are good,” she said at a press conference on Thursday, adding that it was the role of the fund to be the “voice of reason” on the topic.
While Georgieva said on Thursday the fund did not support the Biden administration’s tariffs on Chinese green tech products, or Trump’s plans to impose a blanket 10 per cent levy on all imports, she acknowledged that there was a political case for such actions.
“Decades of globalisation has led to overall positive outcomes,” Georgieva told journalists. “But there have been negative consequences for some communities, including here in the United States, with jobs disappearing as a result of cheap imports from other countries.”
She added that the pushback to free trade from people in the US, and in Europe, indicated a “genuine concern” that “has to be taken seriously”.
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