IMF: U.S. Tax Reform Will Boost Global Economy

Published February 6, 2018

The International Monetary Fund (IMF), a nongovernmental organization providing policy advice to member nations, predicts the Tax Cuts and Jobs Act will boost overall global economic prosperity over the next two years.

Global economic output will grow by 3.9 percent annually in 2018 and 2019, IMF predicted in January 2018, revising projections upwards by 0.2 percent over October 2017 forecasts.

IMF analysts cited the new U.S. tax law, enacted in December 2017, as a reason for the increased optimism.

“The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018–19,” the IMF analysts wrote.

The new law lowers most individual income tax rates, permanently reduces the corporate income tax from 35 percent to 21 percent, and makes other pro-growth changes to the U.S. tax code.

‘Significant Impact’ of Tax Cuts

Dan Pilla, one of the country’s premier tax experts and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the benefits of tax reform are already showing up.

“We’ve already seen organizations that have announced hiring plans and changes to or increased spending to infrastructure,” Pilla said. “There’s all kinds of evidence out there that this is going to have a significant impact.

“The U.S. had the highest corporate tax rate in the world; now we are below the average 22 percent rate,” Pilla said. “That has transformed America into a tax haven nation instead of a nation that people ran from because of tax liability. That encourages domestic companies to stay here and encourages foreign companies to relocate here.”

Taxes Down, Investment Up

Adam Michel, a policy analyst with The Heritage Foundation, says tax cuts reward investment and work.

“Tax reform works to allow economic growth through two main channels: changes to taxes on labor and on capital,” Michel said. “When taxes on worker’s incomes go down, they tend to save, invest, and work more. When taxes on businesses, or more precisely, taxes on capital investments, go down, business investment goes up.”

Michel says tax reform has a track record of boosting economic growth.

“The historical evidence is clear: When business taxes go down, economic growth increases and workers’ wages go up,” Michel said. “These effects have been seen with tax changes in German and Canadian provinces, when U.S. states have lowered business taxes, and most prominently in the 1980s, the last time America reformed our federal tax code.”