03 07 2017

IMF Chimes In On US Tax Reform Plans

The US corporate income tax should be replaced with a rent tax (either a cashflow tax or an allowance for corporate capital tax) with a somewhat lower marginal rate, the International Monetary Fund has said.

"This would incentivize business investment and lessen the existing bias toward debt finance," the IMF added in its Article IV consultation for the country.

It added that transitioning to a territorial system, as has been proposed by the administration, merits consideration but ought to be combined with a minimum tax for profits earned in low-tax jurisdictions to limit the scope of profit-shifting.

The Fund also proposed that the US should also consider eliminating "the various corporate tax preferences that currently complicate the system" to make the tax code more equitable and efficient, and increase international investment, the IMF said.

On measures to boost revenues to fund corporate and individual tax reform, the IMF said a broad-based, five percent consumption tax would generate revenues worth around 1.5 percent of GDP per year, a carbon tax of around USD45 per ton of CO2 would generate revenues equal to 0.5 percent of GDP per year, and each 50 cents increase in the gas tax would raise revenues of around 0.3 percent of GDP per year.