Taxes and the welfare state

This article was originally publishein El Cronista on August 4th2021.

Congress is once again increasing taxes on the productive sector. Additionally, it is evaluating to free the provinces from the few remaining restrictions to ensure fiscal responsibility, which are already respected by few. This is ridiculous in a country that, according to World Bank, occupies 21st place, among 191, in terms of squeezing companies with tributes. Additionally, the same organization takes a small business that earns well with respect to its income and then analyzes what would happen to you it paid all the current levies. Argentina is one of the two countries in the world in which it would go bankrupt. Of course, our politicians keep promising that they are going to promote small businesses and are amazed at the enormous levels of evasion that exists in the sector. Obviously, if they tried to pay every tax, the great majority would go bankrupt.

In general, Argentines think that the problem is the national tax system. But the reality is that today there are about 170 municipal taxes and fees and little more than 120 which are provincial. What’s more, the latter have managed to invent more than 80 different rates. Most of them would not pass a constitutionality analysis; since they do not pay for a service, as our Magna Carta establishes, but they are taxes in disguise.

PUBLIC SPENDING

Of course, politicians justify all this mess arguing you have to maintain the Argentine public spending and that it is not high; because, in terms of total production, it is similar to those of European countries. Comparing them doesn’t make any sense. The Argentine economy cannot withstand the same tax pressure as developed nations. To understand, let’s imagine the government taking half of what a family whose income is $ 10.000 per month earns to finance public spending. You will have about $ 5.000 left, which will pay for a reasonable lifestyle. On the other hand, if someone who earns $ 1.000 has to give half to the State, he or she will be below the poverty line in most countries. Well, the income ratio used is similar to that between the per capita GDP of the European Union and that of Argentina.

Developed countries increased public spending as they produced more and more goods and services, so they could assign a lower proportion to their basic needs and more to public spending. This should not be surprising. The poorest families poorest spend a higher percentage of their income on what is most necessary to survive (food, drink, clothing, medicine, and energy) than the richest ones, who have more disposable income to spend on services. The same thing happens within countries. Thus, developed nations can afford to have higher public spending. However, they have to be aware that if they spend in excess and inefficiently it can start to work against their economic well-being, which is happening today in many of these countries.

WHY DOES THE TAX BURDEN INCREASE?

In Argentina, politicians have convinced people that a large State promotes development. That’s why, for decades, we have let them build one that serves them instead of Argentines. This is how they managed to impose the idea that “adjusting” excess public spending is recessive. Therefore, to sustain increasingly high spending, they increase taxes on the productive private sector, which has to generate the resources to pay their own salaries and expenses and those of the State. But this is not enough for them. Even when squeezing us to the fullest the Treasury has to take debt and, as the credit market is the same for both the private and public sectors, they leave those who invest, produce and consume without financing. That is to say, to maintain the size of the State, the productive sector has to shrink. For this reason, we see fewer and fewer private-sector ventures. Since “generous” politicians increase public spending by taking more unnecessary public employees, they need money to pay their salaries, so they take more resources from the private sector, increasing its problems and further encouraging the government to come to the rescue of the “excluded” who are increasingly sucked into this vicious cycle of decay.

Argentines have developed the absurd idea that increasing public spending will benefit us because someone else will end up paying the bill. The reality is that, in the last few decades, the State grew so much that the tax pressure necessary to sustain it ended up reaching most Argentines. We should take into account that, the proportion that is paid in taxes in the price of the vast majority of goods and services is greater than 40% or even 50%. This makes everything very expensive, so fewer goods are sold and produced, impoverishing all Argentines, who are increasingly realizing this is wrong.

VOTING AND REFORM

This is why we need to reform the State in order to ensure it serves citizens and that, in addition, taxes go down to a reasonable level. To do this, Argentines have to change first.

The vast majority of us make daily sacrifices by austerely managing our homes in order to prevent our families from going through hardships. However, politicians who promise to spend more are elected and take the country from crisis to crisis, diluting the sacrifice made by families and destroying their standard of living. I invite you to vote for those who promise to manage the finances of the public sector with the same austerity and responsibility that we do at home. If we do, let us not be surprised to see that Argentina changes course, offering more opportunities for progress and well-being for all.

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