OECD Sees More Tax Increases Coming For US, Eurozone


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A paper released Tuesday by economists from the Organization for Economic Cooperation and Development says that the U.S., Japan, and the U.K. will find it difficult to reduce government debt in order to reach long-term growth targets.

From The Wall Street Journal:

In a paper by its economists, the OECD said that of its 34 members, the three have the largest combination of spending cuts and tax hikes to make if they are to reduce government debt to 60% of gross domestic product by 2060.

The OECD said they will also have to rely more than other members on measures that are either bad for growth or income equality in order to reach that goal…

The economists said that the U.S. will likely have to rely heavily on tax increases, although cuts to spending on health and pensions may also play a role.

"Consumption, environmental and inheritance taxes, as well as personal income taxes, appear to offer considerable potential," the economists said.

The OECD's analysis predicts countries will prioritize tax hikes rather than spending cuts: 

Across all countries, the OECD's analysis suggests tax hikes will play a significant role in cutting budget deficits. That runs contrary to the preferences of policy makers at the onset of austerity, when spending cuts were typically preferred as a source of between 75% and 80% of all fiscal consolidation

The economists sent a different message to countries in the European Union and Australia:

Another group–comprised of 16 countries—Austrialia, Italy, the Netherlands, Spain and Sweden–can reach the 2060 goal using measures that are least harmful to growth and equality. A group of six countries–including France, Greece and Ireland–can reach the 2060 goal without too much use of harmful measures.

The Wall Street Journal report cites government spending cuts as what the OECD identifies as harmful measures, while tax increases offer "considerable potential." At least one country's auditor may disagree—last week, the Cours des Comptes told the French government to start cutting its spending, which is now 56 percent of the nation's GDP.