OECD to Washington: Avoid the fiscal cliff

By Bernie Becker - 06/26/12 11:47 AM ET

Washington officials should find a way to avoid the upcoming “fiscal cliff” of tax increases and spending cuts, a new report from the Organization for Economic Cooperation and Development (OECD) says.

The OECD, a Paris-based group that seeks to improve economic conditions worldwide, said that avoiding the cliff at the end of the year and other policies — like supportive monetary policy from the Federal Reserve — could help prop up the economic recovery.

It also says that policymakers should rein in deficits gradually, as they look to put the U.S. fiscal situation on firmer footing.

“Lawmakers need to implement further fiscal consolidation measures when economic recovery is secure,” the group writes. “Such measures should ideally enhance long-run growth prospects and reduce income inequality.”

In all, the OECD predicts that real gross domestic product in the United States will grow by 2.4 percent in 2012 and 2.6 percent in 2013.

The group also says that increased consumer consumption and business investment show that the economic recovery is picking up steam, though concerns remain in the housing market.

In addition to advising that the United States take steps to reduce income inequality, the OECD also calls on the federal government to continue implementing the Dodd-Frank Wall Street reform law and boost its education and job training policies.

“In the longer term, education and training are key to raising the skills and wages of the workforce, and in this regard, further enhancing the community college system would be a cost-effective way to provide more individuals with an affordable way to increase their human capital,” the OECD writes.

The organization also suggests that rolling back tax breaks used most frequently by the wealthiest would be one good way to battle income inequality — and that, while the U.S. economy remains quite innovative, the federal government should keep as robust a research and development budget as possible.

As it stands, Bush-era tax rates on income and capital gains are set to expire at year’s end, and automatic spending cuts are set to hit early in 2013. Lawmakers from both parties have also been meeting to try and lay groundwork for a broad deficit agreement.