News analysis

'Tax the rich' is IMF's unlikely new mantra in tussle with Trump

WASHINGTON • The International Monetary Fund (IMF) spent decades telling the world's governments how to run their economies on a United States-inspired blueprint known as the Washington Consensus.

But there wasn't much consensus between the IMF and the White House on Wednesday, as they got embroiled in an unusually public disagreement over President Donald Trump's tax plans. The flashpoint was a new IMF paper arguing that developed nations can share prosperity more evenly, without sacrificing growth, by shifting the income-tax burden onto the rich.

"Excessive inequality can erode social cohesion, lead to political polarisation, and ultimately lower economic growth," it said. The study came out as Mr Trump was hitting the road to promote the biggest overhaul of America's tax code in decades. The Tax Policy Centre, echoing most independent analysts, says it will benefit high-earners most.

As it hosts the world's financial leaders in Washington this week, the IMF has been celebrating a global recovery that's gathering pace after the crash of 2008-2009. But old economic certainties are proving harder to put back together, and new concerns are forcing their way onto the agenda.

The IMF has been rowing back from many of the policy prescriptions it used to hand out. Meanwhile, in developed economies, voters have expressed frustration with what they perceive to be the unequally shared fruits of free trade and open borders - most dramatically in the US, by electing Mr Trump.

His administration took immediate aim at the IMF's analysis, with a Treasury official disputing the fund's conclusion that less-progressive tax rates could slow growth and make inequality worse. The official said the proposed cuts will leave the median US worker better off.

The IMF said redirecting resources for education and healthcare from the rich to the poor can address gaps in social schemes. Its tilt towards redistribution may ease frictions with some governments - but not, evidently, with Mr Trump's. And that's a potential problem for the IMF.

The US was the driving force behind the IMF's creation after World War II to oversee the global currency system. But Mr Trump has expressed scepticism about institutions like Nato, and about globalisation in general.

The Treasury official said the IMF and its sister institution, the World Bank, should focus on using their resources effectively. The biggest contributor to those resources is the US government.

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A version of this article appeared in the print edition of The Straits Times on October 13, 2017, with the headline ''Tax the rich' is IMF's unlikely new mantra in tussle with Trump '. Print Edition | Subscribe