United States Must Raise More In Tax Revenues, Says IMF

by Leroy Baker, Tax-News.com, New York

03 August 2004

The International Monetary Fund has advised the government of the United States to increase revenues from taxes in order to bring about a reduction in the budget deficit and make provision for extra spending on social security entitlement.

"Given the magnitude of the fiscal adjustment considered necessary and the already-ambitious plans for cutting non-defense discretionary spending, most directors felt that revenue enhancements should be actively considered," the IMF stated in its annual review of the US economy.

The report saw “considerable scope” for simplifying the income tax structure and broadening the tax base, noting that in 2003, the personal income tax system provided $675 billion worth of tax credits and exemptions, the equivalent of 6.2% of gross domestic product.

“These tax expenditures add to the complexity of the US tax system, increase compliance cost, and can give rise to unproductive behavior aimed at tax avoidance,” observed the IMF.

Furthermore, the report claimed there is “ample room” for a broadening of the corporate tax base, especially by addressing the widening gap between corporate book and taxable profits which could have brought an extra $130 billion in corporate income into the tax net.

The IMF report also spoke of “abounding anecdotal evidence” that firms are exploiting loopholes and shifting money to low tax jurisdictions and suggested further tightening of the compliance regime.

“Simplifying the existing tax system would also reduce compliance costs and discourage rent seeking behavior,” the IMF noted.

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