What does taxation have to do with inequality? These countries are working it out


A woman holds a banner during a protest against the violence happening in Colombia over tax reform in Madrid, Spain. AP

The American and French Revolutions are modern history’s most famous examples of popular resistance to paying taxes. But the pitched rhetorical battles over taxation currently being waged in three different countries are nothing like those 18th century transformative struggles.

When Britain’s 13 American colonies rose up in the 1770s, it was to protest against taxation without representation. When ordinary Frenchmen took to the streets barely a decade later, they were challenging the inequity of a tax system that largely exempt the clergy and nobility. In contrast, the ongoing political wars against tax changes in the US, Colombia and Spain threaten to arrest progressive change and could actually entrench inequality. In some ways, these examples of tax resistance are the counter-revolution.

Consider Spain, where the May 4 Madrid regional election delivered a resounding victory — albeit just short of an absolute majority — to Isabel Diaz Ayuso and her conservative People’s Party. Ms Diaz Ayuso, a feisty 42-year-old who promises that Socialist Party prime minister Pedro Sanchez’s days are numbered, ran on a platform of “libertad” or freedom. In the way she presented it, freedom was to be understood almost exclusively as light taxes, and for bars and shops to remain open during the pandemic. Her message appears to have resonated deeply, not just in the conservative neighbourhoods long loyal to her party, but across a working class belt around the Spanish capital. Grateful members of Madrid’s hospitality industry, part of the city’s sizeable services sector, even named a pizza, a beverage and a potato dish after her.

The triumph of Ms Diaz Ayuso’s brand of street-fighting conservatism has raised the spirits of Spain’s fragmented right, as well as its counterparts in Europe. Matteo Salvini, leader of Italy’s far right League, for instance, rushed to congratulate Ms Diaz Ayuso and to claim a deep affinity with her party. There is obvious interest in replicating her political formula, which capitalises on coronavirus restrictions fatigue and makes a virtue of impoverishing the state, all in the name of individual liberty.

But the low-tax plan championed by Ms Diaz Ayuso sits oddly with Europe’s declared social agenda, one that was restated just last week at the Social Summit in Porto, Portugal. In Porto, leaders of the EU member states agreed to address the heightened inequality and poverty induced by the pandemic, as well as to provide enhanced social protection to their people. And they promised to move from aspiration to implementation of the proclaimed “pillar” of social rights agreed in Gothenburg, Sweden four years ago.

Taxes have always been a contentious issue

But how does one achieve Brussel’s new quantitative social targets — raising the employment rate of 20- to 64-year-olds to 78 per cent, ensuring 60 per cent of adults engage in some skills training every year and reducing by 15 million the number of Europeans at risk of poverty and social exclusion — without raising resources for the state?

As one of the few regional leaders in western Europe to fight against supposedly excessive coronavirus curbs as well to resist the state’s responsibility for the pandemic-affected populace, Ms Diaz Ayuso’s stance appears closer to that of the Republican Party governors of Texas, Florida and South Dakota in the US.

Those Republican governors are in line with their party’s broader opposition to raising taxes to fund some of the biggest pieces of president Joe Biden’s domestic agenda, the American Jobs Plan and the American Families Plan. The Biden administration’s proposed tax rises for corporations and the wealthiest Americans would pay for government spending on infrastructure, energy, education, child care and to support low-income families. But Republican senate minority leader Mitch McConnell has said that no lawmaker from his party will “revisit” the 2017 tax cuts that became law under the previous Republican administration.

Much of the Republican rhetoric hides a basic fact about Mr Biden’s plan. Historically speaking, the proposed tax increases aren’t particularly high and the wealthiest Americans would still only pay tax at rates that are lower than in the 1940s, 1950s and 1960s. Sharon Parrott, president of the progressive think tank, Center on Budget and Policy Priorities, recently likened the politics of tax cuts to an act of “worship”. Tax cuts, she added, have not only shrunk America’s revenues but its ambitions and “the price of not raising revenues is ignoring festering problems.”

The third battle over taxes is being fought in Colombia. Bloody street clashes have forced president Ivan Duque to withdraw a plan to raise taxes in order to address rising poverty caused by the pandemic, fund social programmes and provide cash transfers to the neediest. The Colombian attempt to widen the income tax net and remove value added tax exemptions would have safeguarded Colombia’s investment-grade credit rating. The proposed legislation, praised by tax experts, had been closely watched as Colombia was one of the first major emerging markets to try and bring its ballooning debt burden back under control.

Though Mr Duque had promised higher tax rates would only target those most able to pay, that reassuring message didn’t seem to get through to the people. Instead, the protesters have confusingly made an alternative and rather expensive demand — the introduction of a guaranteed minimum income — without higher taxes. With a general election due in Colombia next year, taxation has become a politically fraught issue and Mr Duque and his proposed legislation have taken the hit.

Taxes have always been a contentious issue. Opinions range across the spectrum, starting with the idea that taxation is legalised robbery and ending at the benign view of tax as a way for citizens to pay their just dues. The reality is that freedom must be balanced by responsibility, and that includes the payment of reasonable taxes.

Rashmee Roshan Lall is a columnist for The National