We should increase the taxes of the richest, believes the IMF

Photo: Matthias Schrader, Associated Press
Protesters from the organization Oxfam wearing heads in the likeness of heads of State to protest against inequality and poverty at the G20 summit in Hamburg last July.

Struggling with a widening of income inequalities, the developed countries could increase their tax more the rich without fear of harming their economic growth, writes a study by the international monetary Fund.

 

“Most developed countries have witnessed a signicant increase in income inequality caused primarily by the increase in the market income of the 1 % of the richest “, noted the experts of the IMF in the latest edition of its fiscal Monitor released on Wednesday. A good part of this phenomenon, it was reminded, was caused by global phenomena, such as technological change, globalization and recessions. But governments have also tended in recent years to weaken their mechanisms of wealth distribution by lowering, in particular, the taxes of the richest taxpayers, with the idea, perhaps, that this could stimulate economic growth.

 

“Although a certain level of inequality is inevitable in a system based on the market economy because of differences in talent, effort, and chance, inequality in excess can erode the social cohesion, lead to political polarization and, ultimately, reduce economic growth,” warns one. In other words, not only the redistribution of wealth does not affect the growth ” if it is not excessive “, but it has a purpose ” positive “.

 

The IMF experts conclude that developed countries would have any interest in undoing at least a portion of their tax cuts in recent years. It is noted, as well as the marginal rate of tax on personal income, the highest in the OECD countries fell from an average of 62 % in 1981 to 35 % in 2015. It is calculated that this figure may rise to a marginal tax rate “optimal” of 44 %.

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The IMF estimates that in 2015 the taxes and social transfers of the government were reduced by an average of the third inequality of market income in the developed countries. Only one-quarter of this reduction would be directly attributable to the action of taxes, and three-quarters to the effects of the policy of transfers, such as social assistance, benefits for dependent children, and other security program of old-age.

 

The case of Canada

 

Remember that in Canada, Quebec and Ontario have virtually the same maximum marginal tax rate of income tax, because, in Québec, a rate of a little over 53 % on income in excess of 203 000 $, which is not only above the average of OECD countries, but above this “marginal tax rate “optimal” of the IMF.

 

For methodological reasons, the experts of the IMF are based only, for Canada, the top marginal rate at the federal level, which is now 33 %. However, in their study that Canada is far from being the countries where inequalities are the highest, and this, before as well as after taxes and social transfers. Canada gets no less ranked among the developed countries, where taxes and social transfers would contribute the least to reduce inequality of market income. Only the United States and Israel would do less well than him in this field over 30 countries, we believe, far behind the first class that are Ireland, Finland and Greece, and a good distance away from Germany (6th), France (9th) and United Kingdom (15th).

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How to tax the richest ?

 

In this area, we must not stop at the difference of the tax rates that apply to taxpayers to the most wealthy and the most poor, say the authors of the study. In reality, the progressivity of the tax system of the country may be lower still because the richest taxpayers often have access to all sorts of ways to pay less tax by taking maximum advantage of the holidays, tax granted, for example, those who earn enough to save for retirement, as income generated in the form of capital gains less taxed and using the advice of experts in tax planning, not to mention tax havens. It suggests to governments that would like to correct the situation not to stop at the tax on the income of individuals. A tightening of the rules on capital gains and on dividend income, as well as property taxes, inheritance taxes and other taxes on goods of luxuries can also be good ways to help the richest to better redistribute the wealth.

 

The IMF has recognized, however, that such reforms can be difficult to make the pass, ” because the affluent tend to have more political influence “.

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