When the debate on a tax reform is on the table and the group of experts chosen by the Ministry of Finance is expected to present its range of measures, presumably at the end of the month, the Government has already applied its first major tax measure. And it has been in the personal income tax, the popular personal income tax. This is a full-fledged tax increase, as the rate of this tax is not deflated based on the CPI.
Without doing absolutely nothing and thanks to an inflation rate of 6.5% in 2021, the Executive is going to take a significant bite out of taxpayers of 4,110 million euros, which represents an average of 199 euros per capita. As a whole, all taxpayers will experience an increase in their tax burden due to the effect of uncontrolled prices.
This is the so-called “cold” taxation increase, which is nothing more than not updating the tax rate and the rest of the elements based on inflation. The cold progressivity of this measure has the peculiarity of going unnoticed, since it supposes a covert tax increase without the need for the adoption of discretionary actions by the Government.
The reality that underlies this measure is that in practice it entails an inconspicuous tax increase and that, precisely for this reason, all governments implement it as it does not have any political cost.
Of the total figure that this measure will cost the taxpayer, 1,693 million come from not indexing the rate and another 2,416 million from having done the same with the rest of the elements of the tax.
If until now inflation had not played a stellar role in the Spanish economy as a whole, thanks to the relative stability that it has been registering in recent years, the strong push in energy prices over the past year, until closing in 6.5%, is going to cause those who declare for personal income tax to pay more, despite the fact that they have lost purchasing power, in their declaration that they will have to present to the treasury in a few months.
In this way, the Treasury has opted for the simplest measure, which is to do nothing and in the process ensure a significant increase in collection. All taxpayers without exception of the level of their income will pay more despite having lost purchasing power, according to a study carried out by the professor of Applied Economics at the Complutense University José Félix Sanz, edited by the Disenso Foundation.
This work comes to highlight how inflation disfigures the income subject to tax, since it reduces in real terms the minimum exempt and reductions applied for the calculation of the taxable base. In addition, the measure shatters the progressivity of the tax, since it pushes a number of filers towards higher brackets of the rate, despite the fact that real income has not changed.
At the end of 2021, according to data provided by the Treasury, income tax collection amounted to 94,546 million euros, after experiencing a growth of 7.5%. The study highlights the behavior of this Government inaction measure and how it has affected taxpayers based on their income, depending on their autonomous community and even their province of residence.
Thus, we can see how the people of Madrid suffer in their pockets with greater virulence from this hidden tax increase, since they will pay 240 euros more for not adapting the different elements of the tax to the evolution of inflation; the Catalans follow close behind, with an additional 224 euros.
Filers in Asturias will experience a supertax of 208 euros, followed by residents of Aragón and Cantabria, with an additional 206 euros.
On the contrary, the taxpayers who will have to face this cold tax increase to a lesser extent will be those of Ceuta and Melilla, with 80 euros, and residents of La Rioja, with 99 euros.
covert rise
This microsimulation exercise carried out by Professor José Félix Sanz comes to ratify, with the endorsement of the figures, the words of Nobel Prize winner Milton Friedman, who stated that “inflation is a tax without legislation”. Therefore, this paper highlights how the so-called cold progressivity has the peculiarity of going relatively unnoticed as it is a hidden tax increase that does not require regulations or actions by the Government.
Dispersion
The breakdown of the fiscal overload that emerges from the study descends to the provincial level, where it can be extracted how the people of Madrid are the taxpayers with the highest personal income tax surtax due to inflation, with 240 euros. Following are the people of Barcelona, with an average of 231 euros, and the taxpayers of the Balearic Islands, with 215 euros per person.
Within the group that exceeds 200 euros of additional cost due to inflation, Zaragoza stands out, with an increase in its rent bill of 212 euros, followed by 209 euros for Gerona and 208 and 206 euros for residents of Oviedo and Cantabria, respectively. . The Alcarreños also stand out, for whom the declaration will cost an additional 204 euros.
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