Experts agree: the income tax must correct the escalation of prices

The political debate raised around the deflation of personal income tax becomes a consensus when tax experts are consulted on the issue. Alberto Vaquero, professor of Applied Economics at the University of Vigo, affirms that it is “necessary” to deflate the personal income tax rate and argues: “When there is a lot of inflation, the real economic capacity suffers and there is less left to save. Although in nominal terms the taxpayer faces the same fiscal effort (the rate does not change), in real terms the fiscal effort is greater». The strange thing, adds Vaquero, is that the State and the autonomous communities have not already deflated.

Jorge Onrubia, professor of Public Finance at the Complutense University and researcher at Fedea, advocates adjusting personal income tax to inflation every year. He attributes part of the increase in the weight of the Income Tax in the total collection to the rise in inflation over the years: “No one touched the rate, but the collection increased.” The academic literature speaks of this phenomenon as a “silent tax reform”. “It is not necessary that a salary increase implies going up a section to pay more for personal income tax,” he also clarifies.

A comprehensive change

Deflation, adds Onrubia, is also necessary to avoid problems of “horizontal inequality”, since inflation affects differently depending on where the income received comes from, even if it has the same volume. This analyst recognizes that in Spain the fiscal pressure is lower than it should be and that the country suffers from a structural income deficit. But he believes that these problems must be corrected with a comprehensive reform of the system, not letting the improvement in collection rest in part on inflation.

Are the communities that have deflated the rate, are they doing it right? César García Novoa, professor of Financial and Tax Law at the University of Santiago de Compostela, says that it is not enough because, in general, the dimension of the deflation (of something more than 4% in most cases), does not reach the figures reached by inflation.

«The personal income tax has to tax the real income, not the fictitious: now the same monetary mass buys less»

Cesar Garcia Novoa

University of Santiago de Compostela

“The Wealth Tax does not have to be eliminated, but it must be reformulated”

Alberto Cowboy

University of Vigo

“It is necessary to deflate personal income tax, the exempt minimums and deductions must also be reviewed”

Nor does it serve only to deflate the tax rate. Stella Raventós, president of the Spanish Association of Tax Advisors (AEDAF), maintains that it is also necessary to act on the exempt amounts and review the deductions. Vaquero, for his part, points out that deflation should be applied in all sections. But he admits that if you don’t want to make it “complete”, at least it should be done to the lowest incomes.

García Novoa understands that one of the reasons why governments may be avoiding deflation both in Spain and in Europe is that fiscal policy is the only tool they have to lower inflation. And an increase in taxes takes money out of the economy and therefore can act as a deflationary measure.

The burden of discord

The Wealth Tax has also come to the fore after Andalusia announced its abolition, the Minister of Inclusion, José Luis Escrivá, defended its harmonization throughout Spain and the Minister of Finance, María Jesús Montero, announced a new temporary tax to tax wealth.

«At the time it was decided to cede regulatory capacity on this tax to the communities. It was already assumed when the law was enacted that there could be differences”, values ​​Stella Raventós. «Having ceded normative capacity is the original sin of the legislator; They are taxes that it is not recommended that they be transferred, ”adds Onrubia.

But the great unknown is whether this tribute has to survive. And here there are discrepancies. Onrubia considers that “it is not a good instrument”. And García Novoa adds that it would not be outrageous if it disappeared. Onrubia considers that, in exchange, the design of personal income tax could be improved.

“In Spain we have a wealth distribution problem that must be corrected,” says Vaquero, who adds, therefore, that the wealth tax should not be eliminated, but he is in favor of reformulating it. And some reforms could be the use of objective assessment mechanisms of the tax base; a higher exempt minimum; a reduction in your marginal tax rate; setting a range of minimum and maximum rates; and the elimination of exemptions and incentives. In addition, it could be integrated into the personal income tax or adopt measures to increase the tax collection potential.

Regarding the new tax announced by the Minister of Finance, Raventós points out that it would be necessary to clarify whether this would come to temporarily replace the current Wealth Tax, given that they should not coexist since double taxation would be incurred; a possibility that is not allowed. The new tax could also be used to reformulate the taxation of assets in Spain.