On 7 April 2021 the IMF held a press briefing to discuss the latest issue of the IMF Fiscal Monitor. The Fiscal Monitor for April 2021 looks at the actions countries have taken in response to the pandemic and discusses how government policies should adapt to allow a fairer and more durable economic recovery.

Tax Policy

The pre-existing differences in access to healthcare and education worsened the impact of COVID 19 and the crisis has increased inequality. Government debt has risen owing to the need to support individuals and businesses, so there is a need to mobilize additional fiscal revenues. Those additional revenues will then be used to fund healthcare, education and social security.

The approach to raising more tax revenue will be different in different countries. In most low income and emerging economies, there will be a need to improve tax administration to enable them to collect more value added taxes and consumption taxes more broadly.

In the advanced economies, there has been a decrease in revenues from corporate income taxes in recent years. There has also been a decrease in the tax revenue from the taxation of personal incomes of the highest income groups.

So in advanced economies there is chance to take action both on the corporate and individual income tax. Measures can also be taken to raise revenue through other taxes such as reducing opportunities for avoidance in capital income taxation and raising more revenue from property taxes or inheritance taxes.

A COVID 19 recovery contribution could be imposed as a surcharge on the personal income tax or the corporate income tax. Some corporations have increased profits during the pandemic and have also done very well in terms of stock market valuation and there is a chance to collect more tax revenue from these companies.

Proposed US corporate tax increase

The IMF has argued for many years that it is important to invest in people and infrastructure. The role of human capital is central to the process of development.

Regarding the US infrastructure and the jobs plan, the details are not yet known so the IMF cannot comment on the details of the plan; but the emphasis on investing in people and infrastructure is in line with priorities that the IMF has often emphasised. The IMF stresses the importance of fiscal policy over time and of balancing spending and revenues.

In earlier IMF research on the previous corporate tax cuts in the U.S. the estimates pointed to relatively small and limited impacts on investment. Currently the IMF view, before having had a chance to analyse the US plan, is that the impacts from these proposed increases in corporate tax rates would also be limited.

In the Biden plan, as explained further by the Treasury Secretary, the corporate tax increase is planned in the context of an effort at the international level to combat tax avoidance and evasion and to make sure that multinational corporations pay their fair share in taxation. So the Biden plan would not only increase corporate income tax rates in the US, but would be framed in the context of a cooperative agreement at the international level that would increase the minimum tax at a global level.

Discussions on global corporate minimum tax

The IMF has been calling for a minimum global corporate income tax rate as a way to interrupt the “race to the bottom” in corporate income taxation. That is important to ensure that governments have the resources needed to fund the various spending priorities they have to serve, and that is very important for the financing of developing countries.