US tax overhaul 'desperately needed'

IMF chief Christine Lagarde on Friday urged the United States to proceed with a tax overhaul, saying it was "desperately needed" to boost growth in the world's largest economy.

"Tax reform is a must. Tax reform in the US is imperative," Lagarde said on CNBC.

"It has to be simpler. It has to be at lower corporate rates," she added.

"It has to eliminate all the exemptions and the exonerations and the various exceptions that make the system so complicated."

The remarks come as the World Bank and International Monetary Fund prepare to stage their annual meetings with member countries next week in Washington.

Republican leaders last month unveiled plans for a sweeping tax overhaul, which would be the first in more than 30 years and calls for slashing corporate rates and simplifying deductions available to individuals.

Opposition Democrats and other critics have denounced the plan as a giveaway to the rich which will balloon deficits and cost many trillions in revenue over the coming decades.

The White House has said the plan aims to reduce the middle-class tax burden and will pay for itself by promoting growth.

However, Lagarde said the plan was still "too embryonic" for a definitive assessment and was likely to change over the course of the legislative process.

Still, she cautioned that ultimately the plan should favor middle-class taxpayers while avoiding adding to mounting US sovereign debt.

"It has to focus on improving the situation of the middle class and be conducive to more labor," said Lagarde.

"It should not increase the deficit. It should not drive to yet more debt into the future."

Lagarde hailed the "amazing" current US economic recovery, which she said was the longest since the mid-19th century.

She said the US would benefit from investment in infrastructure and from immigration reform, which could increase the pool of available skilled labor.

"That should be conducive to more growth and you add to that the appropriate degree of deregulation so that the red tape and the bureaucracy do not hamper growth," she said. "Those are good principles."

Source: AFP