A few weeks ago, Nobel economics laureate Paul Krugman described in the New York Times the defeat he has followed among Republican governments, from Ronald Reagan to the ineffable Donald Trump, his reduction mantra tax-based groups to America’s richest groups. The Republican mantra is his conviction that fewer taxes always lead to greater investment, more growth, and more employment. With irony, Krugman defined that successive conservative administrations in the US have derived from the “economics of voodoo to that of the “evil eye”. This is tantamount to saying that lower tax revenues from tax cuts for the rich would be offset by higher growth and, ultimately, higher tax revenues.
Is that so? Nothing proves it, but this zombie policy, Krugman says, “is a belief that has failed every time its defenders have tried to implement it,” and which, as in the case of George W Bush’s presidency, not only did not generate more growth, but ended at the worst d oppression since the 1930s. And when this kind of magical thinking fails Republicans, they hold others accountable for their bad outcome. Trump has repeatedly blamed the US central bank for not lowering interest rates, China for keeping the price of its currency artificially low and raising the US trade deficit, and even its Democratic opponents for “wanting the economy to be bad for the purposes of the 2020 election.” This would be the evil-eyed policy.
Any resemblance to Chilean politics is pure coincidence. Here, total tax integration (Bachelet II’s government had already partially disintegrated the tax regime by allowing two-thirds of the stated to be disaffected as credit) would result in a tax loss of about US$ 800 million , which will go mostly into the pockets of the one percent higher income. This gift would be offset by more investment, more growth and higher employment. The truth is, nothing proves that it will. Rather – given the evidence of what happened under the Republican administrations of the United States – everything seems to indicate otherwise.
But this doesn’t end the story. Total tax integration will further increase the regression of Chile’s tax system, helping to raise (if possible) the inequality of a society that holds the highest global levels. Contrary to what is often said by Creole voodoo ideologues, the tax burden and income taxes paid in Chile are clearly below the average of what OECD countries are taxed, while the Gini coefficient (level of inequality) points to our country only preceded by Mexico (see table).
The fat to cut from
However, the story ends here either. Neither successive concertgovernment steers nor Piñera’s have done the exercise of comprehensively reviewing – with a somewhat less short-to-click approach than annual budget gymnastics – on what and how taxes are spent. To ask, for example, whether the level of defence spending is consistent with the OECD’s own recommendations for “increasing government income from income taxes to increase equity”. Or examine whether it is also consistent with that of a neighborhood that allocates between half (Peru) and a quarter (Argentina) of national spending. And if it’s about holding hands on the wallet, the $5 billion stock of FFAA from copper funds is not inconsiderable.
Beyond (or here) the abusive diet of Creole parliamentarians, there is still a lot of fat in public spending that can help to fatten social spending. A comprehensive review should include institutions where one in four civil servants – such as Gendarmerie – performs non-operational tasks granted as a “prize” to the stalwarts of the shift headquarters. Bureaucratic fat as much or more contradictory when at the same time more gendarmes are asked in prisons. There is also a large expenditure on remuneration associated with “risk allocations” in Gendarmerie that is difficult to justify. Does anyone understand why Chilean gendarmes are the only militarized prison corps with “coronels” and “majors” whose only justification is the high incomes received either as active or in retirement?
With regard to its Gross Domestic Product, the Chilean tax burden – skewed by a regressive tax, such as VAT – is 42% lower than that of the OECD; income tax; 38% lower than the OECD average; social spending, the equivalent of half; pension spending, a 43% lower; spending on education, 38% lower, and health spending, 41 per cent lower (see chart).
Contrary to the OECD’s proposal to reduce the band with which higher-income people are taxed, the tax reform bill – today (still) in the Senate – makes the intention to reduce the tax rate on that group from 40% to 35%.
A no less part of the bulging average indebtedness of Chileans – and the sparsely regulated housing market – comes from speculation encouraged by real estate companies. It is known cases where these companies, through triquiñuelas that the regulator should already obtain ccnocer- obtain mortgage loans for the wife, mother-in-law or sister-in-law of the same acquirer, who manages to evade consolidated control of their debt, but to take over the domain of three or more properties. In theory, the value of the lease would pay off the loan. But it’s a bubble with a highly explosive potential. Just remember the American subprime crisis.
How to curb this real estate speculation? The OECD itself has said: “Property tax revenues are among the lowest in the Countries of the Organization.” By the way, of course, this is an additional source of tax revenue.
Now let’s think proactively: Would it be too much to ask that government and Congress sink their teeth into “sensitive” sectors?