IMF Criticism of U.S. fiscal position: "Increase revenues"

In a speech yesterday, Rodrigo de Rato, managing director of the IMF called for the U.S. to address its fiscal deficit in an effort to stem the growing current account deficit. Specifically, he noted that:

This requires bold action to reduce the fiscal deficit. The U.S. administration recognizes the need for this, but a major element in their plan is unprecedented cuts in spending. These would have been difficult to achieve even before the devastation wrought by Hurricane Katrina. Uncertainties about the costs of operations in Iraq and Afghanistan, the reconstruction of the gulf coast, and the outcome of Congressional debates on how to control entitlement spending, cast further doubt on whether the goals of the deficit reduction plan can be achieved.

I understand very well that measures to raise revenue are not very popular in Washington, but neither are higher interest rates, more goods or financial market turbulence, which are among the possible outcomes in the U.S. of a disorderly adjustment of global imbalances.

He is absolutely right about raising revenue to reduce the deficit. If President Bush's tax cuts of 2001, 2002 and 2003 were eliminated for the very wealthy, there would be a sharp decline in deficits in the near term, which would reduce much of the uncertainty building that could trigger a disorderly adjustment of global imbalances. However, it is unlikely that even with his popularity in the toilet, that Bush or the Republicans in Congress would retreat on the tax cuts. But when the adjustment happens, blame will fall squarely on their shoulders.