The legislative year is about to finish and with the electoral reform looking less viable than ever, income tax reform has taken the spotlight.
Most voices from the political spectrum agree on the fact that the tax floor and its brackets have to be modified in order to stop overtaxing middle and working class taxpayers. It was the rallying cry of the three major candidates during last year’s presidential election — President Mauricio Macri included — and is currently the chant being repeated the most by the political opposition and unions when advocating for a reform.
However, promises become harder to live up to once in office, especially when the tax represents a fifth of all money collected by the country’s tax agency AFIP every year.
That’s why the government is negotiating a reform to the tax code that benefits workers but won’t create a fiscal wound impossible to heal. In this process, however, it’s the opposition the party that can make more lofty proposals, while taking credit for the most progressive parts of the reform. This is probably one of the causes for Macri to downplay the issue’s relevance in an interview with different media outlets from the interior when he said it’s a tax “that only affects the top three percent that earns the most.”
The president went on to defend his administration’s project, arguing it is “doable,” taking into account the government’s complicated fiscal situation and, according to La Nación, has agreed to include a proposal from Sergio Massa’s Renewal Front, which could translate to taxing the gambling industry. Government estimate this move could bring in AR$ 6 billion in revenue every year.
These statements will surely cause several outlets to fact check and see if the statistic is actually correct. Economist Matías Tombolini told Perfil that while there are no official numbers right now, it is estimated about 1.6 billion people pay the income tax. Considering Argentina has an economically active population — people working or actively looking for a job — of 18 million people, the number would actually triple.
Given that the idea that only the top 3 percent are not actually responsible for all of the revenue coming in, there’s a bigger question that should also be taken into consideration. Why does a portion of the population that is unequivocally not wealthy carry such a large amount of Argentina’s tax burden?
A large part of those affected by the income tax policy are actually part of the lowest earning bracket: those who earn between AR $24,000 and AR $32,000 a month and pay a different percentage depending on whether they are married or single. Considering that, according to the statistics agency’s last numbers, a family needs roughly AR $13,000 in order to not be classified as poor, the impact high income taxes has on this group has an impact on their ability to afford the basics – not having to take two ski trips this year instead of three.
On the contrary, they are part of what many consider the country’s middle class. Although they are included in the percentage that earns the most, the fact that this number is little over twice of what’s needed to be poor speaks volumes about income inequality in the country.
If there is a way of increasing revenue by passing the burden on to sectors more apt to withstand it may be a viable solution. This is why including the FR’s proposal to tax the gambling industry could be a good way of taking some of burden off of an already stretched (and according to some sources shrinking) middle class while still generating the revenue needed to prop up the country’s progress and more intelligent spending.