The International Monetary Fund is one of the United Nations’ many sub-organizations, each handling a certain scope of global politics. The IMF, as the name implies, works to ensure global financial stability, international trade and reduce poverty. Whilst departments like the IRS exist to keep track of things like a business’s employer ID number, the IMF keep track of how a country’s funding affects the world.
Managing Director and CEO Christine Lagarde took notice of the new US tax policies, which she describes as ‘complicated’, and says that there will be some serious effects from the changes, both good and bad. According to her, the growth bump the new tax policy will bring might overheat the US economy, and might cause Uncle Sam’s debts to go up.
In an interview with Reuters on the 1st of March, Lagarde says that these tax cuts are capable of upping the US’s growth rates over the next three years, up to 2020, which should, in turn, bump up the global trade scene for a few years, due, in part to the country’s open economy model.
The IMF once advised to the US to create a new business tax code, one that cuts down on the complexity and allows for more efficient operations, in order to help not only the businesses and their employer ID number, but also everyone involved in the process.
The new tax code follows this advice, though Lagarde says it also has the potential to cause lots of inflation. Lagarde elaborates, saying that the policy will stimulate growth, but that the US economy is already growing, the economy might ‘overheat’, which might increase wages, but also worsen inflation, which will then be followed by the metaphorical belt tightening, as the country’s monetary policy tightens to compensate for rising interest rates the cuts would cause.
Similar increased interest rates led to certain countries, particularly in Asia, to approach the IMF for bailouts. Another issue the IMF notes is the US’s budget deficits, and the debts that would kick in following the growth. The organization Center for a Responsible Federal Budget even notes that the US’s budget deficit could shoot past $1T by 2019, thanks to the tax cuts and increased spending.