José Manuel Suárez Mier*
It is fashionable to propose tax reforms to raise government revenue to undertake endless spending, from creating a universal welfare state, redistributing income and wealth, investing in ultra-broadly defined infrastructure, to solving global warming.
The jeremiad of some in Mexico, with years criticizing that the collection is too low to finance a “modern state,” is wrong in ignoring the many other exactions that the government imposes on citizens, which in many cases exceed 50% of their income, and the lousy services it offers in return.
The fiction that Mexico acceded to modernity is evidenced by the capricious way the government decides to spend, without the slightest attention to the population’s needs and attending only to the leader’s thoughts, in projects that do not pass the slightest cost-benefit analysis.
All this comes to mind because it is taken for granted in the political circles that the great tax reform is being prepared for after the elections of June 6, which the leaders of the private sector accept with notable myopia because the reform they yearn for is quite different than that prepared by a government that has never paid attention to them.
In addition, it is necessary to consider the political circumstances of the countries since the popular uprising that followed the announcement of the fiscal reform of the president of Colombia, Iván Duque, which included extending the VAT to burials and funeral services when almost 100,000 have died from the pandemic, is very understandable and marks the sure expiration of his government.
What happened in Colombia is reminiscent of the Chilean riots of two years ago in response to a modest increase in the fare of the Santiago metro, which despite exempting students, escalated with its leadership to extreme levels of violence, which induced to vote for a new constitution that will be written mostly by left-wing extremists. Will it be the end of their financial miracle?
In the United States, far-reaching reforms are also brewing, although they would only pay for half of the colossal spending plans proposed. The intention is to tax companies and the rich more, but if the huge gaps that allow the rich to avoid taxes are not eliminated, they will fail in their attempt.
It must be remembered that the incidence of taxes – who actually pays them – is very different from appearance. As an old friend rhetorically asked, have you ever seen a corporation walk down the street? Taxes on companies are paid by their owners or their employees or the consumers of their goods and services, and it is divided between them as the case may be.
The history of taxes and the enormous importance they have had in the future of nations, much greater than what is thought, is fascinating and allows us to explain how much things have changed as a result of the great progress that has occurred and how little that the government’s tax appetite has done it.
*Consultant in economics and strategy in Washington DC and professor at universities in Mexico and the US. Email: aquelarre.economico@gmail.com
This column is also published in Spanish on May 20, 2021, in the Excélsior newspaper, based in México City.