The US and China will both need to make major changes to put their medium-term debt and deficit on a sustainable path, International Monetary Fund Fiscal Affairs Director Vitor Gaspar said on Wednesday.
“If you look at what is exactly driving the US and China, you would say it’s large and persistent budget deficits on the order of 6% to 7% of GDP throughout the period up to 2028,” Gaspar said. “Growth has slowed and the medium-term prospects are the weakest in some time” for both countries. To fix this problem, Washington will need to make difficult choices, including higher taxes on wealthy individuals, ending tax breaks for fossil fuel production and raising or eliminating the income cap on Social Security taxes, Gaspar said.
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