Cut taxes, dangerous fantasy | Economy

The new PP leans towards the old and fanciful fiscal recipe of Ronald Reagan: lower taxes. With personality generalas its spokesperson Cuca Gamarra defends when postulating that his first pact with the government be “to lower taxes because it is good, not for the PP but for Spain and the Spanish” (at COPE, April 7).

or with character widespread, as its new leader, Alberto Núñez Feijóo, points out, by advocating reductions in two of the three main figures: VAT (for fuel) and personal income tax, “immediately” and “retroactively”. In addition to keeping the hydrocarbon special to a minimum and eliminating the registration… for now.

It goes against the advice of BBVA Research: “We must avoid a general reduction in taxes that compensate for the increase in energy costs” (Situation Spain, second quarter 2022, April 7). And what the governor of the Bank of Spain, Pablo Hernández de Cos, warned about a month ago: “A fiscal impulse must be avoided widespread” (in Hill & Knowlton, March 15). The support must have a “selective character” with “temporary measures, so as not to further increase the structural deficit”, he argued.

The IMF will also warn this week against the downward race with the intention of increasing competitiveness. He will suggest tightening income and wealth taxes. In the Spanish case, it is necessary to be especially cautious, maintains the Government. Cutting taxes would increase money in circulation, which would further trigger inflation; it would increase the debt; and it would distance us further from the greater European fiscal pressure.

What is the point of reviving the old recipe? That easing the tax burden always reaps echoes. And to what the lobby conservative increases its noise to the beat of inflation and war.

The rent reduction that the PP sells is specifically inspired by a publication by the Complutense Economics professor José Félix Sanz for the Disenso Foundation, whose patronage is headed by the leader of Vox, Santiago Abascal (“How much will Spanish taxpayers pay more in personal income tax due to inflation during 2021”, February 21).

He knows in depth all the sides of the coin.


Sanz estimates that taxpayers will suffer, over the 2021 financial year, an extra cost of 4,100 million euros, and a decrease in purchasing power of the same amount due to the fact that the rates have not been deflated by updating the tax brackets. And it is that by raising salaries and other income to compensate for the rise in prices, some incomes jump from section and lose part or all of what they had earned fiscally. It is the “cold progressivity”.

Curiously, this protest arises when the average year-on-year inflation in Spain rose to 3.1% in 2021. A lower peak than those of 2008 (4.1%) or 2011 (3.2%), when rates were not deflated. So no one seriously asked for it. Now, the academic and political campaign intensifies.

To the point that Sanz has launched an addendum to his text, encrypting the “remora” of the extra cost for taxpayers at 14,379 million, 2008 to 2020: as nominal wages rose and income tax brackets stagnated.

Of course, neither he nor anyone specifies how to compensate for the eventual “return” of those amounts to the taxpayer: yes through social spending, with the return to austerity cuts of the welfare state. Or through hikes in some other big tax.

One candidate would be VAT, but raising it would feel bad among the popular classes, who bear it the most, since they spend more of their income on consumption than the rest. And furthermore, it would collide with the PP campaign to reduce it in fuel.

There is another: the Corporation Tax, something that kicks the conservative world. Although the decreasing collection figures do seem to offer room for its increase, which would more than compensate up to the 14,379 million to be “returned” by personal income tax. Indeed, in the same period 2008-2020, Companies have lost 312,412 million euros of potential collection capacity: 21.7 times what the State would lose with the reduction in rent.

This amount arises from calculating what would have been collected in the same thirteen years (2008/2020), if the product of the tax harvested in 2007 had been equalized in all of them: 44,823 million. That is, a total of 582,699 million. And to subtract the 312,412 actually entered by the Treasury, given its decreasing curve. Of course, these are merely illustrative figures, to contrast a certain obsession with personal income tax and VAT, but never Companies. Well, in fact, much of its decline is due to the correct elimination of double taxation (due to the internationalization of companies). Although not only to her, but also to the abuse of exemptions and relief (holes in the emmental), or to the centrifugation of subsidiaries in tax havens.

In fact, the PP returns to where always. Reducing taxes “is economically profitable, more is collected by expanding tax bases and therefore attracting companies,” argued in 2018, in the midst of the Trump bubble, the author of Pablo Casado’s economic program, the ultra Daniel Lacalle. In short, lowering taxes would seek to collect much more than raising them, as the Laffer curve was fictionalized. Thus, he abounded in the enthusiasm that Sanz himself showed about this invention, calling it “an indisputable reality” (Papers, 154, 2017).

Lacalle not only disguised that the mandates of Ronald Reagan and George Bush II multiplied the US deficit and public debt, arguing that this was the fault of increased spending “due to war.” He affirmed in the networks that in those periods “the income skyrocketed”. Also false.

Anyone who is not lazy can encrypt that falsehood, with data from the OECD, or similar data from the Tax Foundation. In Reagan’s paradigmatic double term, the income tax —whose marginal rate was lowered from 50% to 28%—, went from collecting 274,051 million dollars (in 1981) to 368,647 (in 1988): it increased by only 1.34 times. A huge slowdown from the previous eight years (Richard Nixon, Gerald Ford and Jimmy Carter), when it went from 97,846 million to 233,269: this is an increase of almost double, 2.38 times.

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