Taxes: Argentina a tax Eden for the richest?

In Canada, personal income tax collection is equivalent to 12.2% of GDP. In the European Nordic countries, those with the highest quality of life and social equality in the world, the figure is higher. In Argentina in 2019 the figure reached 7% of the Gross Domestic Product. Comparative table with 9 other countries:

In OECD countries, known as “the club of rich countries”, income tax is paid more by individuals than by companies; about 75% of the tax is contributed by human persons. In Argentina, 58.8% is paid by companies. Why is the Argentine system worse? Because companies pass taxes on to costs and it ends up being paid by consumers, and fueling high inflation.

The lawyer and political scientist Jose Nun (former Secretary of Culture of Nestor Kirchner) in 2018 argued that the tax pressure must be raised, but not on the middle class or companies, but on large personal fortunes. He considered that by updating the tax value of real estate, reinstating the inheritance tax, creating a net worth tax that exceeds 2 million dollars and putting a tax on luxury goods in a couple of years the fiscal deficit would disappear.

Can you lower the pressure on companies (especially SMEs) and on consumption, and raise it at the same time on people with greater purchasing power? Yes. We will now delve into two of Nun’s ideas:

1) raise property taxes,

2) reinstate the inheritance tax (which eliminated the last military dictatorship in 1976)

Undervalued Real Estate

In Argentina, the collection of real estate tax represented only 0.41% of GDP in 2015. In the United States and Canada, the property tax in the same year accounted for around 3% of GDP. In France it was 2.6%; in the United States it was 2.5% and in Uruguay it was 0.92%. The OECD average (which brings together almost all the most developed countries) is 1.7% of GDP.

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Already in 2014, a document from the CIPPEC (independent study center) mentioned that the collection of the property tax in Argentina was reduced by almost 50% during the last 10, and recalled that this tax is considered one of the least distorting, less pro-cyclical and potentially more progressive.

Two years ago, ECLAC (the Economic Commission for Latin America and the Caribbean, a UN agency) estimated that with a more up-to-date valuation system, Latin American countries could generate extra income of up to 2% of GDP. The fact that rural property is improperly taxed is very relevant for Latin America since many countries have a large sector of primary and livestock commodities.

To measure the level of tax undervaluation of the land, it is enough to name the example of the province of Buenos Aires. According to data from the specialist and researcher Martin Mangas (professor at the National University of General Sarmiento) in terms of collection, All the vehicles (automotives, yachts, boats, aircraft) patented in the province of Buenos Aires (totaling more than 6 million units) collect 9% of the total Buenos Aires tax revenue, while all the Buenos Aires rural land (which is groups approximately 300 thousand rural items) collects 3% “.

Province of Buenos Aires Climate Change.jpg

http://argentinainvestiga.edu.ar/

Real estate tax collection in Argentina went from representing 0.63% of GDP between 1993-2001 to 0.37% between 2008-2016, and while the value of the properties showed an inverse behavior. For example, the value of rural land increased more than fivefold than the revenue from the property tax it levies.

Federal inheritance (or inheritance) tax

Warren buffet, an American millionaire who in 2017 ranked third on Forbes’ list of the world’s richest people, interviewed by the New York Times in 2001, said that “Without the inheritance tax there will be an aristocracy of wealth, which means that the ability to control the nation’s resources is passed on based on inheritance rather than merit”.

In the same way, Joseph Stiglitz, Nobel Prize in Economics, argues that “Without an inheritance tax, we are creating a new plutocracy, characterized by self-perpetuating dynasties. The tax is designed to limit the extent of inherited inequality to create a slightly more level playing field.”

In the United States the inheritance tax has been in force since 1916. And there are many developed countries that have an inheritance tax in force and quite high:

In Japan 55%, South Korea 50%, France 45% United Kingdom and United States 40%.

In Latin America, the countries with inheritance tax in force are: Ecuador (35% rate); and Chile and Venezuela (25%) and Brazil (8%).

In Argentina it only exists in the province of Buenos Aires and it is low (approximately 5%).

Sociologist and political scientist. College professor. TW: @JulianCorvaglia