Friday, July 6, 2018
The International Monetary Fund has recommended that the United States raise indirect taxes to boost revenues, to offset the cost of recent tax cuts and spending increases.
In its latest report on the US economy, published July 3, the IMF said that the combination of lost revenue from the Tax Cuts and Jobs Act and the approved increase in spending "will create a significant increase in the fiscal deficit in the next few years."
"The Tax Cuts and Jobs Act contains many positive changes but these come with a high budgetary price tag. Many of the objectives of the Tax Cuts and Jobs Act could be better achieved by replacing lost revenues with increases in indirect taxes," the report said.
The report echoed the IMF's previous commentaries on the tax reform measures, particulary with respect to corporate and international tax changes, suggesting that a higher tax rate on unrepatriated profits should be imposed, that the business tax should be reformulated as a cashflow tax, and that the international provisions should be redesigned to impose a minimum tax on low-tax jurisdictions and to avoid giving more favorable treatment to exports than to imports and domestic sales.
Last month's concluding statement of the 2018 IMF mission to the US noted that the reduction in the statutory corporate tax rate to near the OECD average and enhanced expensing provisions will help incentivize investment and lessen the motivations behind base erosion and profit shifting behaviors.
However, the IMF was also critical of the new 20 percent deduction on pass-through business income, which it argued has created a significant opportunity for tax avoidance by individuals on high incomes.
The IMF also said that there is scope to strengthen the design of various of the international provisions in the TCJA, particularly with respect to anti-profit shifting regimes, including the Global Intangible Low Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) rules, and the Base Erosion Anti-Abuse Tax (BEAT).