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Reducing corporate tax collection leads to inequality in Spain

The decline in corporate tax collection is a defining element in the increase in inequality in Spain in recent years. This is one of the conclusions of the report. Income Inequality and Redistribution in Spain: New Evidence from the Laboratory of World Inequality LaboratoryPrepared by a team of experts for the Economic Policy Center EsadeEcPol.

In this study, led by Clara Martinez-Toledano, a professor at Imperial College London and senior staff member at EsadeEcPol inequality and taxation, the evolution of tax composition in Spain is monitored from 1980 to 2020. In this way, indirect taxes (taxes). On products) accounts for about 50% of the total period, while direct taxes (income tax, corporate tax, property tax, etc.) account for the remaining 50%. The most important direct tax is the personal income tax, which is about 30-40% over the entire period, followed by the corporate income tax, only 8-18%. Property taxes have gradually increased in weight from 1980 to the present (from 2 to 6%), mainly due to increased investment, mainly in the real estate sector, as explained in the report.

However, Martinez-Toledano notes that “corporate tax collection as a percentage of national income is lower today than it was before the real estate boom.” Personal income tax has gained weight since the 2008 crisis, and while corporate income tax has lost it, the value of the latter is now even lower than it was before the real estate boom of the 2000s, while personal income tax is higher. “These changes in the importance of taxes in relation to national income and their composition can have a profound effect on the progress of the system.

“Although the richest 0.01% paid taxes on taxes at 29% of their income in 1999, this percentage increased to 40% in 2007, again falling to 27% in 2019. This is mainly due to revenue growth and further loss. From the corporate tax, ”the report describes in detail.

In fact, Esade’s study points out that “income inequality declined during the real estate boom years, but increased after the onset of the 2008 financial crisis, with fundamentally rising unemployment, declining wages and rising financial incomes among the highest-income groups. The share of the person with the highest income in the national income has increased from 13% in 2007 to 17% in 2019.

A professor at Imperial College London denies theories that some experts justify declining corporate tax revenue in recent years, noting that “the collection was artificial in 2008 because companies made lots of profits but eventually collapsed.” Martinez-Toledano explains that “collection is lower than before 1999” and stresses that “progress is falling because the design of the tax system is different”.

In this regard, he supports corporate tax reform “so that collection continues to rise to the level of a real estate boom”, although he does not want to give specific recipes, he notes that it is obvious that he has. Be “rate hikes and reduced exemptions for companies.”

“Pre-distribution policy”

But another finding of this study is that “taxes and transfers correct inequality, but they are not enough because a large source of inequality arises before distribution. “There are other forces that are creating inequality, and not only tax policy should be done to rectify this situation, I mean the policy of pre-distribution,” Martinez-Toledano added.

In fact, the report states that “patterns of inequality do not change substantially with the action of state redistribution,” among other things, as “the progress of the tax system has declined since the 2008 financial crisis.” Thus, despite the fact that “by 2007 the poorest 50% will benefit more from redistribution than the intermediate 40%, mainly due to the large loss of income before tax and the lowest income between groups in remittances”, the reality is. That from the gross income “the poorest 50% goes from 14% to 17% before and after the tax redistribution.”

“The poorest have lost a lot of income before taxes because they are more likely to suffer from unemployment and wage cuts. They enjoy slightly more than 40% of their median income through tax breaks, but this is mainly because they start from very low. It is clear that the richest 1% received the most benefits, which went from 13% of national income in 2007 to 17% in 2019, “- explains the researcher of EsadeEcPol.

In this regard, the study aims to “improve education policy to address educational gaps, as well as reduce high unemployment and promote temporary employment to improve middle- and low-income incomes”; Changes the production model to facilitate investment in sectors in which Spain has a comparative advantage, such as the renewable energy sector, as well as a design policy that allows traditional strategic sectors such as tourism or agriculture to generate more added value. For example, through new technologies. ”

In addition, researchers suggest “measures that provide affordable access to ordinary housing, such as social rental, to reduce debt levels and increase household savings rates at the bottom of the distribution. Similarly, policies focused on diversifying middle and lower class savings not only into non-financial assets but also into financial assets will allow these groups to increase the profitability of their assets and therefore generate more capital income. To which should be added “Improving financial education during compulsory education and / or increasing the participation of workers in the capital of their companies.”

Source: El Diario





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