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IMF says U.S. should raise minimum wage, offer paid maternity leave and overhaul taxes

Christine Lagarde

International Monetary Fund managing director Christine Lagarde says “the U.S. economy is in good shape” now but faces longer-term problems.

(Florian Wieser / European Pressphoto Agency)

The International Monetary Fund downgraded its forecast for the U.S. economy this year and said America should raise the minimum wage to help the poor, offer paid maternity leave to encourage more women to work and overhaul the corporate tax system to boost productivity.

In its annual checkup of the U.S. economy, the IMF on Wednesday predicted 2.2% U.S. growth this year, down from 2.4% in 2015. In April, the international lending agency had forecast 2.4% growth for 2016.

Still, IMF managing director Christine Lagarde, citing a healthy job market, says “the U.S. economy is in good shape.” U.S. unemployment fell last month to an eight-year low of 4.7%. Employers have added a solid 200,000 jobs a month over the past year.

The U.S. is growing faster than most other advanced economies. The IMF foresees 1.5% growth this year for the 19 countries that use the euro currency and 0.5% growth for Japan.

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The American economy got off to a slow start this year, expanding at a lackluster 0.8% annual pace from January through March. A strong dollar hurt exporters by making their goods costlier in foreign markets. Energy companies have slashed investment in the face of low oil prices.

Lagarde also said the U.S. faces longer-term economic problems, including an aging labor force, weak productivity growth and growing income inequality.

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She noted that the United States is the only rich country in the world that does not offer paid maternity leave and where American women are far less likely to work than men. Offering paid family leave and help with child care costs could encourage more women to seek jobs, she said.

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The U.S. could improve productivity by overhauling the corporate tax system — reducing tax rates and eliminating loopholes that encourage inefficiency, the IMF said.

To combat widening income inequality and help the poor, it recommended a higher minimum wage and expanded tax breaks for low-income Americans.

The IMF also believes the Federal Reserve should move slowly to raise U.S. interest rates and to allow U.S. inflation to temporarily overshoot its annual target of 2%.

Low inflation rates can discourage consumer spending, which accounts for about 70% of U.S. economic activity. When prices remain flat, shoppers don’t have to worry about paying higher prices and may even delay purchases, thinking they will save money if they wait.

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