IMF Sounds Caution on U.S. Tax Reform: Don't Raise the Deficit

(Bloomberg) -- The International Monetary Fund is giving the Trump administration some unsolicited -- and possibly unwelcome -- advice on the Republican tax plan: don’t make your fiscal situation even worse.

“Given where the U.S. is, in terms of its overall debt level and the off-the-balance-sheet obligations going out into the future as the population ages, we feel that whatever the tax reform plan looks like, it should not increase the deficit,” IMF chief economist Maurice Obstfeld told reporters Tuesday after publishing the fund’s latest global economic forecasts. Over the medium term, “tax reform should be revenue enhancing,” he added.

While White House Budget Director Mick Mulvaney has argued the reform may need to raise the deficit in order to spur growth, Treasury Secretary Steven Mnuchin said last month that over the longer run the economic stimulus will help shrink the deficit.

The debate will rage on in a Congress filled with budget hawks and doves. It’s probably why the IMF didn’t even account for the Republican plan when forecasting U.S. growth -- after removing the assumption of a tax-boost from its U.S. growth forecast in June. “We are waiting to see what happens,” Obstfeld said.

To contact the reporters on this story: Randall Woods in Washington at rwoods13@bloomberg.net, Andrew Mayeda in Washington at amayeda@bloomberg.net.

To contact the editors responsible for this story: Sarah McGregor at smcgregor5@bloomberg.net, Randall Woods