Simon Johnson: The US Tax System Is A Fiscal Anachronistic Mess

This article originally appeared at, an online Spanish business news website. Click here for the original version of this article, in Spanish.

Simon Johnson, former IMF Chief Economist and current MIT professor said during an interview last week in Washington DC that “the US tax system is a fiscal anachronistic mess” and that it would be “relatively easy to reform in an efficient way and get more revenue in a more efficient way.”

In reference to the ongoing budget and debt ceiling discussions that are currently taking place on the Capitol Hill, Johnson pointed out that his Republican friends “don’t want to talk about tax reform” because if it happens, the government may “go out and raise a lot more revenue.”

When he referred to the fiscal problems and challenges ahead for the US, Johnson said that “the fact that the US dollar is a reserve currency makes a big difference,” especially when areas such as the Eurozone are not able to deal with their sovereign debt mess by printing more money.

“Some market messages are also political messages and mean that the politicians don’t need immediate pressure, perhaps until it’s too late, but let’s see how that turns out,” he said.

He said he was still aware of the ongoing issues in Spain, especially concerning the banks capitalisation levels. “You need capital on the cajas and you need to be sure that the capital in the big banks is strong as
well,” he said, “because further disruptions could be from a Greece, Ireland or Portugal restructure, or could be from something else.”

Johnson explained that “if you have to much leverage in any banking system, that creates a fiscal risk. That’s a risk that hopefully will not materialise in the case of Spain, but the prudent thing to do is to make sure you have enough capital in the financial system.”

About the austerity measures and the ongoing structural reforms in labour market in Spain, he was still doubtful. “We’ll see…the first steps are in the right direction and what the market looks for is the ability to reform and to move the budget when necessary,” he said. “I hope that that’s enough but who knows?”