By David Lawder

WASHINGTON (Reuters) -The International Monetary Fund on Thursday said the U.S. Federal Reserve should not cut interest rates until "late 2024" and the government needs to raise taxes to slow the growing federal debt - including on households earning less than President Joe Biden's $400,000-a-year threshold.

The prescriptions came in the detailed staff report from the IMF's annual "Article IV" review of U.S. economic policies released on Thursday. The Fund has been emphasizing in recent weeks the need for more fiscal prudence as U.S. deficits continue to grow despite robust economic growth and as Republicans and Democrats formulate tax and spending proposals ahead of November's presidential election.

IMF chief economist Pierre-Olivier Gourinchas told Reuters on Tuesday that the Fed could afford to wait longer to start easing monetary policy due to a strong labor market.

But the staff report specifies that this shift should come in "late 2024," to avoid more upside surprises in inflation data, without specifying a particular month. The Fed's next policy-setting meeting is July 30-31, with other meetings scheduled for Sept. 17-18, Nov. 6-7 - after the U.S. election - and Dec. 17-18.

"Given salient upside risks to inflation — brought into stark relief by data outturns earlier this year — it would be prudent to lower the policy rate only after there is clearer evidence in the data that inflation is sustainably returning to the FOMC’s 2% goal."

RAISE TAXES

The IMF said that the U.S. public debt to GDP ratio is projected to remain well above pre-pandemic forecasts over the medium term, reaching 109.5% by 2029 compared to 98.7% in 2020.

"Such high deficits and debt create a growing risk to the U.S. and global economy," the IMF said, adding that progressive tax increases were needed, including for those earning less than $400,000 per year, and eliminating a range of tax expenditures.

Biden has proposed raising tax rates on corporations and wealthy Americans but has vowed not to increase taxes on households with annual earnings below $400,000. Republican rival Donald Trump has said he wants to preserve tax cuts passed when he was president in 2017 and possibly cut some taxes further for middle-income Americans and corporations.

Individual income tax cuts are scheduled to expire at the end of 2025, snapping back to pre-2017 levels unless Congress acts to extend or adjust them. The Congressional Budget office estimates that extending the cuts would add a further $4.6 trillion to deficits over 10 years.

The IMF, which often requires fiscal prudence among its borrowing countries, recommended a series of options to lower deficits, including reducing some longstanding tax deductions and exemptions that it said were "poorly targeted." These include tax exemptions for the value of employer-provided healthcare plans and capital gains on the sale of a primary residence, and deductions for mortgage interest and state and local taxes - breaks that add up to about 1.4% of U.S. GDP per year.

The U.S. should consider closing the "carried interest" provision under which investment partnership income can be taxed at lower capital gains income rather than normal income, the IMF said. It added that corporate tax rates should be raised and the corporate tax system shifted to a cash flow tax.

The IMF also recommended raising federal excise taxes on gasoline and diesel, which have not been raised since 1993.

On the expenditure side, the IMF recommended indexing Social Security benefits to the chained consumer price index and subjecting earnings greater than $250,000 a year to payroll taxes.