The International Monetary Fund (IMF) has revealed that some “rich countries” could, in theory, raise income taxes without harming economic performance.
It said raising the top rates of tax could reduce inequality without having an adverse impact on growth.
In its new half-yearly fiscal monitor, the IMF suggested that there should be “significantly higher” tax rates for those on higher incomes – amid reports that doing so could deter investment or be negative for growth.
It said: “Empirical results do not support this argument, at least for levels of progressivity that are not excessive.”
The top rate of tax has, in fact, fallen over the last four decades, from an average of 62 per cent in 1981 to just 35 per cent in 2015.
In the UK, the top rate of tax is currently 45 per cent – a significant drop from the near 100 per cent tax rates seen in the 1970s.
Alex Wild, research director of the TaxPayers’ Alliance, condemned the suggestion, however.
“It’s hardly surprising to see the IMF calling for higher taxes, firstly because their employees don’t pay tax, and secondly because they are almost invariably wrong.
“Given the fund’s recent catalogue of spectacularly poor judgement calls on the euro, Brexit, Greece and UK fiscal policy, it’s a wonder anyone pays attention to their policy prescriptions.”
According to the report, the IMF ranks the UK “about middle of the pack” of advanced economies in terms of how progressive its tax system is already.