US President Donald Trump should scale back his plans to slash taxes for corporations and the rich, according to some of the top economists at the International Monetary Fund (IMF).
In its annual economic health check-up for the world’s largest economy, the IMF said “many directors” on the fund’s board called for an increase in the overall tax take across the US.
That contradicts Trump’s plans to make significant cuts to taxes in an effort to stimulate the economy to growth of as much as four per cent GDP growth per year.
The IMF report said the directors “urged the authorities to ensure that tax reform leads to an increase in the revenue-to-GDP ratio and that the burden of fiscal adjustment does not fall disproportionately on low- and middle-income households.”
Tax revenue as a proportion of US GDP stood at 26.4 per cent in 2015, according to the Organisation for Economic Co-operation and Development (OECD), compared to 32.52 per cent in the UK.
Treasury secretary Steven Mnuchin has previously said the US will cut its corporate tax rate from 35 per cent to 15 per cent.
While some in the President’s Republican party think the tax cuts will pay for themselves in the form of higher growth, independent estimates from the Committee for a Responsible Federal Budget show the loss of revenue could cost $5.5 trillion over a decade.
Growth is expected to reach 2.1 per cent this year and next, “modestly above potential”, the IMF predicted, but this will unlikely be enough to stop a massive build-up in the government’s spending deficit.
Furthermore, the spending cuts proposed by the Trump administration in an effort to balance the budget could result in a slower growth rate, the IMF said, although a reduction in the tax rate allied with smaller spending cuts could prove to be a short-term macroeconomic boost.
The body also urged the US government to continue to focus on increasing productivity in the face of “secular shifts” which could “continue to drag down both potential and actual growth, diminish gains in living standards, and worsen poverty”.