Unbridled by domestic American politics, the International Monetary Fund gave Social Security — the so-called “third rail of American politics” — a bold kick Thursday in a report that urged the Obama administration to focus more on closing the deficit. The report also said that economic growth would occur at a slower rate than the White House is predicting and that the nation will fall deeper in debt than anticipated.
The U.S. must halt or reform its runaway entitlement spending, stop encouraging home ownership with tax credits and change its low-tax policy on gasoline, the IMF said in a new report on U.S. economic recovery efforts.
Just weeks after members of the G-20 scolded the United States for spending beyond its means, the IMF took a hard line against government-inflated institutions many Americans have grown comfortable with and said the administration must do more to reduce the deficit.
“Given that we use less optimistic economic assumptions than the administration, we see the need for a more ambitious adjustment to stabilize debt than that envisioned by the authorities,” the report said.
Aside from cutting spending in certain areas, the IMF said that the United States must raise or implement taxes to carry out such an “ambitious adjustment.” Among those, the IMF recommended new energy taxes, duties on financial transactions, and a national consumption tax.
The report estimates that the U.S. economy will grow 3.25 percent in 2010 and drop to three percent next year. Unemployment will not dip lower than nine percent through 2011. The numbers reveal little confidence in America’s ability to revert back to pre-recession levels of growth and employment.
“We are less optimistic than the authorities about the path of growth,” said David Robinson, a deputy director in the IMF’s Western Hemisphere Department. “In part this comes from our research that after a financial crisis there is a permanent loss of output.”
The Congressional Budget Office raised similar warnings in June, estimating the national debt would climb to 87 percent of GDP within ten years.