Trump, Biden Urged By IMF To 'Carefully Consider' Tax Rises As Fiscal Deficit Hits Alarming Levels

The International Monetary Fund (IMF) urged the United States to address its escalating fiscal burden promptly. The IMF’s criticism came ahead of the first presidential debate and targeted the tax plans proposed by candidates.

What Happened: In the IMF’s annual Article IV health check projections, the report predicts the U.S. debt-to-GDP ratio to climb to 140% by 2032, a significant leap from the current 120.7%, Financial Times reported on Friday. This increase, attributed to anticipated fiscal deficits in the forthcoming years, would exceed previous records set post-World War II.

The IMF cautioned that these soaring deficits and debt levels pose a growing threat to the U.S. and global economy. The potential repercussions include higher fiscal financing costs and a risk to the smooth rollover of maturing obligations.

"These chronic fiscal deficits represent a significant and persistent policy misalignment that needs to be urgently addressed,” the fund report said.

The IMF has urged both presidential candidates, incumbent president Joe Biden and former President Donald Trump to consider a range of tax increases, including on incomes for those earning under $400,000 a year. The fund also highlighted that Trump’s tax plans, which include making permanent a series of cuts he introduced in 2017, are expected to add between $4 trillion and $5 trillion to U.S. deficits over the next decade.

Why It Matters: The IMF’s warning follows the Congressional Budget Office’s prediction earlier this month that the deficit is likely to hit $1.9 trillion this year, or about 7% of GDP. This has raised concerns among economists and investors that neither Biden nor his Republican rival Trump are prepared to adequately control spending.

The IMF has previously voiced concerns about the sustainability of U.S. fiscal policies. The fund’s deputy chief, Gita Gopinath, emphasized in an interview that the U.S. cannot sustain a deficit of 7% of GDP.

Meanwhile, Treasury Secretary Janet Yellen stated that the current U.S. debt load is manageable, provided it remains at its current level relative to the economy. However, the interest payments on the national debt are projected to exceed $1 trillion this year, nearly double the amount paid before the Fed aggressively raised interest rates.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari

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