IMF backs new taxes for US
Published:Wednesday | August 3, 2011 | 12:00 AM
Christine Lagarde, managing director of the International Monetary Fund (IMF), applauded the conclusion to the debt-limit debate after it was signed into law Tuesday by US President Barack Obama.
Lagarde then urged the US to focus on developing a medium-term framework on debt and deficit reduction that includes savings in entitlement spending and new revenues.
Entitlements refer to programmes such as Social Security, and Medicare and Medicaid.
Revenue is the term used by Obama and Democrats to refer to taxes.
Lagarde's statement appears to support Obama's position of a 'balanced approach' to deficit reduction under which he had proposed a US$4 trillion package that offered up US$3 of spending cuts per dollar of revenue raised.
The revenue proposals were chiefly around closing tax loopholes. Republicans rejected the proposal.
Lagarde said the passage of the debt-limit bill, which raises the debt ceiling by US$2.1 trillion to US$2.4 trillion but also cuts spending a near equal amount, reduces uncertainty in the market and bolsters the US' "fiscal credibility".
"... This agreement is good for both the US and the global economy," she said. "Raising the debt ceiling means a severe economic disruption has been avoided, and the accompanying deficit reduction deal is an important step toward fiscal consolidation."
The IMF chief said the cuts were "appropriately phased and not overly frontloaded", and so were unlikely to stymie economic growth. The bigger cuts are not expected to start taking effect until the end of 2012.
"The challenge for policymakers is now to develop a consolidation framework that includes clear medium-term debt and deficit objectives," said Lagarde.
"Putting public finances on a sustainable path will entail identifying further savings in entitlement spending as well as new revenues."