IMF Says US Budget Requires 33% Spending Cut & 35% Tax Increase

President Obama told the American people we have to “Eat our Peas” as encouragement for the nation to make the painful decisions to address our out-of-control federal deficits. To understand how many peas we would have to eat; a recent IMF report: “Who Will Pay and How?” determined that under a moderate growth “baseline scenario, a full elimination of the fiscal and generational imbalances would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent.”

Most Americans didn’t seem to mind if nobody’s taxes got raised or benefits got cut, but with Moody’s credit rating agency’s announcement that the United States of America is under review for a solvency downgrade, our nation is headed for a crisis and somebody needs to start eating their peas!

The IMF recognized that Americans were very willing to pile up massive amounts of debt for children to pay. Unfortunately as the charts demonstrate below; peak payroll taxes are spread out for all workers over their careers, but the much larger individual income tax payments start out low for young people and do not peak until their 50s and 60s. This makes the concept of the future generation debt transfers rather ineffective:

Most politicians assume when it comes to deciding the merits between raising taxes and cutting spending; men will tend to oppose higher taxes, because they already pay more taxes than women; and women will be more opposed to cutting spending, because they get more government transfers than men from food stamps and child support, since they are the main beneficiaries of such transfers themselves and on behalf of children.

It should not be surprising that President Obama idea of eating peas would prefer tax increases over spending cuts.

Much of his election victory is credited to receiving a record 35,900,000 votes from women. This resulting 7% national women’s voting gender gap over men was due according to research by Vicky Lowell of the Institute for Women’s Policy Research , to women feeling anxiety over financial burdens and economic well-being than men. In women’s perceptions, Obama was:

• Better equipped to deal with the nation’s economic ills;

• Projected empathy for women’s financial struggles;

• Understood how hard it can be to keep a job today while caring for families;

• Understood that women are more economically vulnerable than men;

• Offered hope while acknowledging women’s struggles.

• Aware of the need for pay equity and work/life balanced policies.

• In touch with the need for expanded health insurance for children.

But IMF research determined that balance of federal spending tends to even out between men and women. As verified below, men tend to suffer more serious diseases, disabilities and poor health than women and thus make greater use of Medicare and Medicaid than women.

The IMF determined: “Contrary to common belief, we find that the financial crisis has had negligible implications for the fiscal gap.” They blamed most of the deterioration of federal budget projections over the last decade due on Congressional enthusiasm to expand Medicare benefits and other spending, without a willingness to pay for the spending with tax increases or reductions in other spending. The IMF also warned that the Obamacare “recent health reform will on net worsen slightly the fiscal gap, according to our estimates.”

The day of reckoning to address the United States’ out-of-control federal budget deficits has arrived. The alternative is to continue on our current path of deficit spending and eventually suffer chaos and financial collapse many nations in Europe are suffering today.

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