Tax the rich? IMF report raises eyebrows

Fund urges nations to go after the wealthy, big business to mitigate financial imbalances

AFP-JIJI

Tax the rich and better target the multinationals: The IMF has set off shock waves last week in Washington by suggesting countries fight budget deficits by raising taxes.

Tucked inside a report on public debt, the new tack was mostly eclipsed by worries about the U.S. budget crisis, but did not escape the notice of experts and nongovernmental organizations.

“We had to read it twice to be sure we had really understood it,” said Nicolas Mombrial, the head of Oxfam in Washington. “It’s rare that IMF proposals are so surprising.”

Guardian of financial orthodoxy, the International Monetary Fund, which held its annual meetings with the World Bank last week in the U.S. capital, typically calls for nations in difficulty to slash public spending to reduce their deficits.

But in its Fiscal Monitor report, subtitled “Taxing Times,” the IMF advanced the idea of taxing the highest-income people and their assets to reinforce the legitimacy of spending cuts and fight against growing income inequality.

“Scope seems to exist in many advanced economies to raise more revenue from the top of the income distribution,” the IMF wrote, noting “steep cuts” in top rates since the early 1980s.

According to IMF estimates, taxing the rich even at the same rates during the 1980s would reap fiscal revenues equal to 0.25 percent of economic output in developed countries.

“The gain could in some cases, such as that of the United States, be more significant,” around 1.5 percent of gross domestic product, said the IMF report, which also singled out deficient taxation of multinational companies.

In the U.S. alone, legal loopholes deprive the Treasury of roughly $60 billion in receipts, the global lender said.

The 188-nation IMF said that it did not want to enter into a debate on whether the rich should pay more taxes. But it said: “The chance to review international tax architecture seems to come about once a century; the fundamental issues should not be ducked.”

IMF chief Christine Lagarde, kept up the sales pitch for a more just fiscal policy. “It’s clearly something finance ministers are interested in, it’s something that is necessary for the right balance of public finances,” said Lagarde, a former French finance minister, in a panel discussion Wednesday. “There are lot of wasted opportunities,” she added.

After the French Socialist government’s proposal of a 75 percent tax on the wealthy was overturned by the country’s highest court last year, France’s finance minister cautiously welcomed the IMF’s new direction.

“If the core idea is that fiscal policy is a policy that aims to reduce inequalities, I wouldn’t know how to protest against that,” Finance Minister Pierre Moscovici said at a news conference in Washington.

The minister said it was a “positive development” but he downplayed that it marked a “significant change” for the IMF.

But the IMF’s Copernican revolution is still in the twilight stage. In its report, the IMF continued to push for a wider scope for value-added tax, a consumption tax that some say is inherently unfair, and on reductions in public spending.

“These proposals are heading in the right direction, but a lot remains to be done,” said Oxfam’s Mombrial, calling notably for the IMF to do more against illegal capital flows, which, according to the NGO, cost billions of dollars in fiscal revenues in the developing countries.

  • Mark Garrett

    TAX THE RICH??!! C’mon now, let’s not do anything rash.
    I’m sure trickle down economics will have a positive effect any time now.
    The gap just isn’t quite wide enough yet. Please continue to be patient.

    • http://www.sheldonthinks.com/ andrew Sheldon

      Mark your sarcasm is surprising poignant because that anyone could be surprised by this news is ‘surprising’. The IMF is favour for its economic rationalism and ‘belated’ advice. Why? Well, it dare not critique the hand that feeds it. It is after all funded by the countries which it now critiques. Responsible taxation is ‘fair’ for the rich; but apparently a different standard exists for the poor, who just spent 20 years accumulating debt…Why? Because the IMF is about 2 decades too late with its fiscal prudence argument. Typical nonsense from liberal & conservative rationalists, aka ambulance chasers, trying to cover their tracks.

      • Mark Garrett

        Huh? You’re usually quite intellectual in your responses, sometimes a bit too so if you want my honest opinion, but I have to say that I have no idea what you’re trying to say here. If I understand your first sentence correctly, you’re surprised at my sarcasm. Really?? Is this the first time you’ve read one of my comments? Sarcasm is at the heart of the vast majority of my discourse.

  • itoshima2012

    raises eyebrows……I guess the headline says it all…. pathetic! Of course everybody needs to be taxed, the rich heavier than the poor….ah, with a GINI over 0.5 in Japan now I don’t see anything happen in that direction soon….

  • japanish

    I think we can all agree, however, that Christine Lagarde is the most glamorous head of the IMF ever.

  • Toolonggone

    I don’t know about other countries, but I will take it as a message–especially, to the US and Japan. The US is a nation that has the least corporate tax rate among the OECD nations. The politicians and billionaires are still whining about the government being harsh on them, which is very funny and pity. Japan is also following the similar path, as Abe and Amari are planning to go easy on J-corps by giving them waiver from tax obligations including post-reconstruction fees which all citizens still need to pay for the next 30 years.