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A group of renowned national economists recently assumed, at the request of the Ministry of Finance, the role of expert consultants on tax reform and reached very interesting conclusions.
The first major conclusion reached by this group is that economic growth generates greater tax revenues. If taxes are not fixed amounts established once and for all, but are proportional to the income that each person receives – and that the country as a whole generates – then it is obvious that if income increases and tax rates are maintained, it necessarily has than to increase tax collection. If income increases by 5%, and tax rates stay the same, then tax revenue should also increase by 5%. It would be the same percentage, but a larger amount. It does not take much level of expertise to reach a conclusion of that nature.
This reasoning leads to a general conclusion of economic policy, which is as old as the capitalist economy itself: that if there is growth and the rich are doing well, the State and the country are also doing well. We have to worry about growth, and not about raising tax rates on companies, because when tax rates grow, things go badly for businessmen, growth stops and that is bad for everyone.
And, from these arguments, the experts reach the underlying conclusion. First-category tax rates must be lowered, that is, those that prevail on the profits of companies – as this helps growth and, therefore, greater tax collection. In other words, we must allow companies’ profits to be higher, their taxes lower, and be content only with the fact that the greater growth that this situation would bring leads to greater tax revenues, and in that way, to greater attention from social needs. This is anti-tax reform at its best and most shameless.
But there is nothing in economic theory or practice that postulates that higher incomes of the richest lead to greater growth. That is an absolutely ideological postulate. There is no evidence that the rich allocate their greater income to greater investment, greater innovation, greater production, greater employment and higher wages, and all of this within the country. The contemporary experience is not that countries grow by reducing their taxes and increasing the income of the richest. There is evidence, however, that social and economic inequality is an impediment or obstacle to growth and development. In the case of Chile, investment rests on the savings of workers – through the gigantic funds accumulated in the AFPs – and through savings and investment by the State. It is also not true that higher tax revenues are neutral or even negative in terms of growth. It all depends on the destination given to the increased tax revenues. If they are allocated to greater social investment, greater infrastructure, or to increase the education and health of citizens, it is highly probable that this will lead, in a not very long term, to growth in productivity, and to the presence of not just any growth. , but about growth with more equality and dignity for all. In the meantime, may God save us from certain experts.
By Sergio Arancibia
