Jeremy Corbyn will be rubbing his hands after a new report by the International Monetary Fund backed Labour’s tax strategy and discredited the Conservatives’ approach.
Higher income tax rates for rich would reduce inequality without impacting economic growth.
The research revealed higher income tax rates for the rich would help reduce inequality without having an adverse impact on growth.
The highly influential half-yearly fiscal monitor ridicules the Tories’ rationale for the reductions in tax for the highest earners in recent decades.
In a direct quote, the IMF said: “Empirical results do not support this argument, at least for levels of progressivity that are not excessive”.
The IMF insist there is no evidence that making the rich pay more tax would have an impact on growth – at least not in the 45 – 50 per cent bracket that Labour now propose. And the Washington body also calls for more progressive taxation to rebalance increasing inequality.
Labour proposed a new 45 per cent tax band on those earning more than £80,000 and a 50 per cent rate for those on more than £123,000.
Corbyn and the shadow chancellor, John McDonnell, said the proposed changes were needed to arrest rising income inequality – a line of argument supported by the IMF study.
Which will be particularly galling to the Tories who spent much of the Conservative Party Conference promoting a version of capitalism, now even the IMF sees as damaging.
John McDonnell reacted: “The IMF support the argument we made in the General Election for a fairer tax system. There is no evidence to support those who scaremonger about the effects of making the rich pay fairer tax.”
The Conservative Party aren’t the only ones sticking fingers in ears after this IMF report. The Trump administration planning massive tax relief for the very richest reacted angrily to the report which totally discredited their approach.
Past analysis by the rating agency Standard & Poor lends its weight to the IMF’s argument. Despite market economies requiring a degree of inequality to function, the research revealed that the widening gap between the wealthiest and everyone else has made economies more prone to boom-bust cycles and has slowed the recovery from the recession.
As a past IMF report summed it up: “a lifeboat carrying a few, surrounded by many treading water, risks capsizing”.
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