If there is a consensus among economists around the world, it is that, of all possible taxes, the one that taxes the income of individuals and the profits of companies is the least distortive and most equitable. Perhaps the ideal would be a tax-free economy, but the other side of this illusion is token public spending.
The origin. In reality, it should not attract attention, despite the fact that the announcement made by the minister-candidate Sergio Massa seemed opportunistic, made to impact the last quarter of the government administration of Alberto Fernández, which seemed to accompany the decision of the official dolphin . Already in the discussion about the penultimate tax reform of 2017, the then economic spokesperson for the Renovador Front, Marco Lavagna fought to eliminate Profits following the slogan developed by the ideas powerhouse of the most powerful unions of the CGT: “salary is not profit.” A curious semantic interpretation of a tax that, while countries with greater economic and social development try to generalize it to eliminate other distortions, here they opt for fiscal abolitionism. Above all, because the name “Profits” comes from one of the many tax reforms enacted in 1974, during the third presidency of Juan D. Perón. Law No. 20,628 also changed the name “revenues” (in force since its creation as a “temporary emergency” in 1932) to “profits” and included workers in a dependency relationship with a non-taxable minimum to which they were added. family deductions. But among other things, inflation got in the way and distorted parameters and values, especially when the reform of the “tablita” by then Minister José Luis Machinea (1999) remained in force, which overturned the idea of more progressivity to the tax with a scale of ascending rates, also distorted by the reappearance of strong inflation. The reform of this government was to place floors without updating the non-taxable minimum or the scales, so it was common to directly pay the maximum rate of 35% or for a salary increase to make two employees separated by a small gap. in their gross salary they will end up being taxed at a ratio of 10 to 1.
The numbers. There are irrefutable data in this regard: while in Argentina, the personal income tax collects 2.5% of GDP each year, a value significantly lower than in neighboring Uruguay (3.8%) and Brazil (3%). and much lower than what OECD countries have, on average (8.3%). “The differences are notable with the most developed countries because informality is lower there, the rates are higher and even the floor from which the personal income tax is paid is much lower,” he explains. Julian Folgareconomists world Bank and professor of Public Finance at the UBA. The structure of a tax like this has three components: the rates (sometimes they are increasing to give an accent of progressivity), the minimum from which it is applied and the scales considered. For example, Folgar points out that in our country in 2021 the minimum was the equivalent of income of 1 GDP per inhabitant, a figure similar to the rest of the region. But for this year that floor was already 2.5 times the average income and with the reform announced for 2024 it would be more than 3 times. In other words, one of the reasons why the personal income tax was always intended to be universalized is lost.
As with other aspects of the economy, widespread informality (it is estimated that between a third and 40% of economic activity is carried out under this modality) The inflationary distortion of the scales made more and more taxpayers pay a larger portion of their salary, but it also put them at a disadvantage compared to other workers who evaded the tax by being in a completely black activity.
It doesn’t go any further! There is a consensus that the current scheme is already exhausted, probably because it was originally designed for a stable economy and inflation took over as normal 15 years ago. lThe latest measurement released by the INDEC (12.4% for the month of August) already brings the year-on-year increase in prices to 124%, but to more than 140% annually if the figures were ratified for the last quarter of the year. of the first two (an average of 7.6% monthly). Private analysts maintain that September already brings a drag of at least 5 points, it is unlikely that this month will reach single digits and thus inflation for the entire year would not be falling below 150% annually. This vertigo pulverizes the progressivity of the tax and denatures it.
Not in vain, after instability processes in the rest of the region, the structure of this tax was rethought. Just in case, Sergio Massa announced that he will send a project to repeal Profits and replace it with a tax on managers and businessmen. But it could constitute a symbolic tax if it does not comply with one of the essential requirements: collection. As the tax base shrinks, so does income to the treasury.
For the taxpayer Caesar Litvin, This new tax on the highest incomes is not going to compensate for the loss of revenue, which is enormous. which would widen the fiscal imbalance. Furthermore, he maintains that it is not clear what will happen to the self-employed and it makes the system more regressive because it focuses collection on the people most in need due to the impact of VAT. “It would have been much more convenient, but you cannot gather votes with this, to reduce the incidence of VAT or Gross Income by a couple of points”he concludes.
The Economist Salvador Vitelli, Head of Research Romano Group, points out that, even removing the tax pressure on the salary, there are still a series of items that report 3.2% of GDP (average), collecting indirectly using the employer as a collection agent. “As if that were not enough, the machinery is set up so that whoever puts the money (the employee) can hardly find out about this,” she argues. In a work carried out by Federico Sturzenegger A few years ago, it established the tax incidence of each tax based on the sector of the population ordered by income. While, in the lowest ones, the cuckoo is the inflation tax, It only affects the 25% of the highest incomes, while pension contributions affect everyone equally and VAT does so at both ends of the scale: some because they consume more in proportion and others because they consume more expensively and formally.
Non-positive deficit. With the latent threat of a hyperinflationary jump, the fiscal accounts became more red in a year that was already triggered by drought. Until August there was a 2.6% primary deficit and then with the devaluation the “PAIS tax” was added on imports (0.5% of GDP) but relief measures were added that subtracted that same amount. Since the commitment with the Fund is to reach the end of the year with an imbalance of 1.9%, what must be covered in some way to reach it is another 0.7% of GDP. But this tax cut takes away resources.
And finally there is the silent game of the governors, recipients of 60% of the co-participating taxes. With the bulk of services in charge, the rigidity in spending in an election year increases the conflict with the national government, which will intensify with the relief measures with VAT refunds. A small “AMBA central” plan that doubles the bet and puts whoever takes office on December 10 in the difficult situation of having to explain that the cost of a timidly present state requires some fiscal obligation. There is no magic.
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