WASHINGTON, Nov 17 (Reuters): US proposals to overhaul the country's Social Security and tax systems could provide a boost to the global economy if accompanied by budget balancing, International Monetary Fund economists said yesterday.
"Debt-neutral social security and tax reform in the United States has large positive effects on the rest of the world," the economists said in a research paper.
Proposals aimed at retooling both the retirement program and the tax code face dubious futures in the current US political climate.
US lawmakers of both political parties were unenthusiastic about Bush's idea of letting workers invest a portion of the taxes they pay to fund the Social Security system in personal accounts in part because of cuts to benefits.
The tax overhaul proposal, while made public only recently, also met with public skepticism over cuts to tax breaks for home mortgage interest and state and local tax payments.
But IMF economists said that the United States could lower interest rates and boost output at home and abroad if it created personal retirement accounts along with setting aside revenues aimed at funding Social Security in a "lockbox" and steps to reduce the budget deficit.
Similarly, a reduction in taxes on corporate income and dividends and capital gains, as envisioned in tax overhaul proposals submitted by an expert panel last month, would help lower world interest rates, the economists said.
But those plans would only do so if offset by taxes increases or spending cuts to insure that there would be no rise in government debt, they said.
"The rest of the world would gain if tax reform in the United States, with the aim of reducing the double taxation of saving, were to be implemented in a revenue neutral manner," the economists said.
Among measures the IMF economists suggest for fiscal consolidation are tax increases. President Bush and most of his fellow Republican lawmakers, who hold a majority in both houses of Congress, are staunch opponents of tax increases of any kind.
The recent suggestion by IMF Managing Director Rodrigo Rato that the United States consider raising taxes to help cut its current account deficit was rejected by a US Treasury Department spokesman.