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IMF issues recommendations to close income gap

The International Monetary Fund warned Thursday that wide income inequality can slow economic growth and proposed ways to reduce it.

Its recommendations include: raising property taxes. Taxing the rich more than others. Raising the eligibility age for government retirement programs.

Such proposals have typically encountered stiff opposition from policymakers. IMF officials say it is up to individual countries to decide whether and how to try to reduce income disparities. But if they do, its report highlights ways it says governments can use tax and spending policies to reduce inequality without inhibiting growth.

The proposals are the latest sign of the IMF's growing concern about income inequality. It's an unusual focus for a global lending organization best known for providing loans paired with strict budget cuts.

The report puts the weight of the IMF behind the notion that large wealth gaps can depress growth, a move welcomed by advocacy groups for emerging economies.

Similarly, an Associated Press survey last year found that a majority of economists think income inequality in the United States is weakening its economy. Middle-income consumers are more likely to spend extra income than wealthier households are. As a result, stagnant middle-class income can depress consumer spending and growth.

Inequality has worsened in most countries in the past three decades, the IMF report said. In the United States the share of income that's gone to the richest 1 percent surged to 19 percent in 2012 from 8 percent in 1980.

The IMF report recommends using progressive income taxes, under which the wealthier pay a higher proportion of their pay; expanding the use of income taxes to reduce reliance on sales taxes, which tend to hit the poor hardest; and reducing tax breaks that are more likely to benefit the wealthy -- the report specifically cites the mortgage-interest tax deduction in the United States.

Taxes on financial wealth are mostly ineffective, the report says, because those assets can be shifted overseas to avoid taxes.

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