The International Monetary Fund (IMF) recently released preliminary suggestions for ways the U.S. could strengthen the economic recovery and improve the economy’s long-term outlook. U.S. policymakers should ignore the IMF’s recommendations.
One of the themes the IMF focuses on is “keeping public debt on a sustained downward path.” There is certainly broad agreement that the U.S. must reduce the size of future deficits soon. The disagreement lies in how to achieve it.
The IMF would have the U.S. reduce its deficits by massively increasing the tax burden it inflicts on American taxpayers. It wants Congress to raise taxes by:
- Instituting a value-added tax (VAT),
- Establishing a tax on carbon emissions,
- Repealing or scaling back the mortgage interest deduction,
- Significantly raising the gas tax,
- Increasing the Social Security portion of the payroll tax by lifting the wage cap, and
- Raising income taxes by shifting to a less-generous measure of inflation.
The IMF would have Congress reduce taxes by a comparatively trifling amount by increasing the Earned Income Tax Credit and offering another ineffective hiring tax credit. It also wants to see Congress make the Research and Development (R&D) credit permanent and reform the badly outdated corporate income tax system.
A VAT and a carbon tax, on top of all the other taxes we already pay, could raise taxes by trillions each year. The other tax increases would take hundreds of billions from Americans as well. All that extra revenue flowing to Washington would greatly increase the size of the government and shrink the private sector. It would stifle economic growth, which would contradict the IMF’s stated goal of helping those in need.
If the U.S. implemented the IMF’s recommendations, our economy would become more like those of European nations, which have substantially higher taxes, much bigger governments, commensurately smaller economies, and less opportunity.
It would be better for all Americans to maintain our comparatively limited government, which has helped make our economy exceptional, by keeping taxes at their historical level and reforming entitlement programs to get our deficits and debt under control.