Friday, March 31

Tax reform: much depends on Biden

After the jobs, the taxes: after the fuss over the labor reform, comes the tax reform. The proposal of the group of wise men commissioned by Minister Montero, finally made public, shows that it is time to stop looking at our navel. The world is at a critical moment to take a fundamental turn towards fair taxation, which ranges from the digital economy to the environment, passing through the great fortunes or heritage. The reform is highly conditioned by a series of European and global decisions that will determine whether or not a model prevails after the pandemic to reverse inequality on a large scale. Our tax modernization – including wealth, companies, income tax, VAT, green and digital taxes – can no longer be addressed as something “national”. This is not just another battle between socialists, podemitas, peperos, voxeros or nationalists. It is part of a total battle – political, ideological, technical – where Spain is presented with different options of European policy, foreign policy and even geopolitics.

You have to start by looking at Biden’s USA. In little more than a year, he has gone from leading a fiscal “revolution”, inside and outside the country, to the stupor of a blockade in the Senate. Biden intended to swiftly reverse Trump’s regressive tax reform of 2017. He wanted to impose the “pay your fair share” (pay what corresponds to you) to corporations, the 700 super-rich, or the great patrimonies, to finance the debt generated by social and environmental plans, and incidentally rebuild the middle class. However, this has not prospered: the initial battery of tax reforms has been decaffeinated, to the point of being cornered within the famous Build Back Better of the 1.75 billion dollars. Fatally, the law has been stranded in the Senate, and with it its tax part. Not only the Republicans are applying a cruel filibuster; there are also disagreements among the Democrats – for some it is technically confusing; for others, it will only benefit the high incomes of rich states like California. On the international front, things are somewhat better. Biden achieved (albeit on the downside) a great global agreement on the taxation of multinationals at the G20 in Rome, in line with the OECD pillars I (profit sharing), and II (minimum taxation of 15%). But here too the worst remains: the predictable brawl over its ratification in the Senate, and more for tactical reasons of the Republicans than for substantive disagreements. Inside and outside the US, a feeling of disappointment and impotence spreads. Possibly nothing is going to move until after the mid-term of November. End of the “fiscal revolution”?

Logically, Europe and regions such as Latin America are looking out of the corner of their eyes to see what happens in the US before taking big steps forward with fiscal, domestic and OECD reforms. No government (the Poles or Hungarians have already said this) wants to remain at a competitive disadvantage or pay a high political cost. Many in Europe and the Americas are already letting it slip that the “fiscal revolution” is not yet here either. Some (taking advantage of the fact that the Pisuerga passes through the Ukraine) prefer to shake the specter of inflation, and urge us to cut expenses to reduce the debt. Others insist on “pre-distribution”: let’s better focus on equal opportunities and not so much on taxes. As if these were not complementary! In reality, both positions are failing to take into account the reality of profoundly unfair and dysfunctional tax systems.

Ideally, the US and Europe should move jointly. But while unknowns such as the US or the war in Ukraine are cleared up, there are several aspects in which the Spanish government should put the long lights, in our own interest and in that of the rest

First, the EU remains as the immediate reference that will determine the Spanish margin of action. Fortunately, the European Commission launched in December the revision of its fiscal framework and the “basket of own resources” to amortize the 800,000 million euros of the EU Next Generation. For Spain there are several open fronts that are strategic. This year (and surely later), the government will have to manage the implementation of this framework, if it wants to reach the presidency of the EU in the second half of 2023 with good credentials. To begin with, there is the Directive for the implementation of the minimum taxation agreement of 15%. According to the EU Fiscal Observatory, it could contribute an additional 83,000 million euros to the European coffers, of which Spain would enter 5,200 million (18% of the current collection). Equally key is to give a boost to the new sources of environmental income, among them the reinforcement of the emissions market, or the CO2 border adjustment.

Second, Spain should promote important adjustments in the EU for a more balanced implementation of the international tax pact, especially in relation to Latin American middle-income countries, which are very vulnerable and dependent on foreign investment. In this, the fiscal urgency of Latin America is great, because, unlike the US and the EU, the region does not have its own monetary instruments (there is no Federal Reserve-dollar, or ECB-euro), nor fiscal (it cannot generate your Recovery Funds). The average collection remains stagnant at less than 23% of GDP (eleven points below the OECD) while the debt has skyrocketed. We must even go further: extend these adjustments to poor countries. There are many ideas on the table: adequately distribute and re-invest the 150,000 million dollars that are going to be released. Or raise more, extending taxation to services and medium-sized digital multinationals. Or hinder the possible temptations of dumping tax that invites the minimum of 15%. The next debates of the G20 in Indonesia, the OECD, the IMF, the United Nations, or even the Community of Latin American and Caribbean States (CELAC), could generate critical mass if they have European support. The EU has to specify with Latin America how to make the fiscal and social pact a joint priority. And the Spanish government could promote these adjustments at the next Ibero-American Summit in Santo Domingo.

Third, the agreement on the taxation of multinationals must go hand in hand with the progressive dismantling of the transatlantic axis of tax avoidance and evasion: the circuit that connects fortunes and tax havens in Latin America, the Caribbean, Europe and trust states such as Delaware or South Dakota. There can be no tax revolution while the US occupies fifth place in the world ranking of concealment, the Netherlands and Luxembourg act as tax havens, and European countries annually let tens of billions of euros escape. It’s also time to end the tax magical realism Latin American: it cannot be that the region – Brazil, Colombia, Mexico in the lead – diverts 40 billion dollars to structures offshore (Tax Justice). Or that 325 billion dollars evaporate from the Latin American treasury, 6% of its GDP (ECLAC).

Finally, we should vindicate the democratic argument: restore confidence to the middle classes in the values ​​and institutions of our democracies, today kneeling under the thousands of Pandora or Panama papers. In the end, the biggest obstacle to the fiscal revolution is not technical, but the internal political cost; That is why governments need the unequivocal support of citizens. Parliaments and civil society in Spain, Europe and the Americas should hurry up, while there are still mfiscal omentum, to demand courage from our governments and weave large networks of solidarity. Whether it is called revolution, reform or transition, if it is not now, it may never be.

Director of Foreign Policy of Fundación Alternativas