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IMF Report Looks At Tax And Wealth Distribution

by Mike Godfrey, Tax-News.com, Washington

17 June 2015


High-income households and corporations now face lower effective rates in some advanced economies, and this has contributed to an increase in net income inequality, according to a new International Monetary Fund report, entitled Causes and Consequences of Income Inequality: A Global Perspective.

The report says that when the income share of the top 20 percent increases, gross domestic product (GDP) growth actually declines over the medium term, suggesting that the benefits of tax savings do not trickle down.

The report calls on governments to use fiscal policy to tackle inequality. The IMF said fiscal redistribution that is carried out in a manner that is consistent with other macroeconomic objectives can help raise the income share of the poor and middle class, and thus support growth.

The IMF says that fiscal policy already plays a significant role in addressing income inequality in many advanced economies, but the redistributive role of fiscal policy could be reinforced by countries relying more on wealth and property taxes, more progressive income taxation, and by removing opportunities for tax avoidance and evasion.

In addition, reducing tax expenditures that benefit high-income groups most and removing tax relief – such as reduced taxation of capital gains, stock options, and carried interest – would increase equity and create space for growth-enhancing cuts to marginal labor income tax rates in some countries, the report says.

TAGS: tax | economics | property tax | tax avoidance | interest | fiscal policy | International Monetary Fund (IMF) | tax rates | tax reform | individual income tax

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