Goshen News, Goshen, IN

Local News

March 15, 2014

IMF: Income disparities hurt economies

WASHINGTON — The International Monetary Fund warned Thursday that wide income inequality can slow economic growth and is proposing ways to reduce it.

Its recommendations include: Raising property taxes. Taxing the rich more than others. Raising the eligibility age for government retirement programs.

Such proposals have typically encountered stiff opposition from policymakers. IMF officials say it is up to individual countries to decide whether and how to try to reduce income disparities. But if they do, its report released Thursday highlights ways it says governments can use tax and spending policies to reduce inequality without inhibiting growth.

The proposals are the latest sign of the IMF’s growing concern about income inequality. It’s an unusual focus for a global lending organization best-known for providing loans paired with strict budget cuts.

Thursday’s report puts the weight of the IMF behind the notion that large wealth gaps can depress growth, a move welcomed by advocacy groups for emerging economies.

Similarly, a survey by The Associated Press late last year found that a majority of economists think income inequality in the United States is weakening its economy. Middle-income consumers are more likely to spend extra income than wealthier households are. As a result, stagnant middle-class income can depress consumer spending and overall growth.

“The IMF is coming kind of late to the party in terms of worrying about inequality and what can be done about it,” said Nancy Birdsall, president of the Center for Global Development. “But they are a big player, so we’re glad they came to the party.”

Inequality has worsened in most countries in the past three decades, the report said. In the United States, the share of income that’s gone to the richest 1 percent surged to 19 percent in 2012 from 8 percent in 1980, the IMF’s report noted.

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