Article published by José Miguel González Hernández in the December issue of La Gaveta Económica.
Why pay taxes? Why doesn't everyone make use of their resources and manage them based on their own needs? Because on many occasions, the market, assuming that it is a succession of rules, may act efficiently from an economic perspective, but not always from a social perspective. And therein lies the question: is the economy at the service of society or is it the other way around? Beyond the criterion of opportunity to carry out the systematization of a tax structure at the service of financing public goods and services, the system must maintain a series of principles to correlate the renunciation of private resources towards collective benefit.
To begin with, the norm must be equitable, that is, have redistributive purposes, causing the requirement of the same sacrifice, generating vertical equity to allow obtaining the same degree of coverage of spending needs. It must also establish the same treatment for individuals with the same income, creating horizontal equity through the existence of equalizing incomes that allow the availability of the same volume of resources per capita through a similar fiscal effort. In short, for the processes to be efficient, each tax must fall on whoever benefits from the service.
On the other hand, it must be efficient, so that the taxes chosen and demanded must not interfere with the economic decisions of individuals and companies, that is, they must be neutral as well as flexible so that the tax system has rapid adaptability to different market conditions, thus showing high elasticity. As it could not be otherwise, its cost must be the minimum possible, which would entail a high degree of tax harmonization and a tax management system with minimum cost in administration and compliance.
The best way to justify any tax burden is to identify it with the purpose for which it is established. Or what is the same, it must be transparent and perceptible, beyond comprehensible to citizens, clearly showing how the tax burden of each tax is distributed.
Regarding the part that collects, it must obviously offer financial autonomy, given that this is established based on the freedom of decision for a given level of government in the destination of its resources or in the structuring of its expenses and in the existence of a certain decision-making power over the total volume of available income. It is also necessary to know how the tax burden that this income entails is distributed among taxpayers. At the same time, the power to distance in time the moment of obtaining the income from the moment in which the expenditure is ordered, that is, expenditure not simultaneous in time with the income, is another important section in order to inform the generation that must face the payment. In fact, financial autonomy depends on the degree of tax power that a government has to decide the total volume of revenue and to distribute the tax burden that finances certain services represented.
One of the unavoidable principles is that every subcentral entity must have in its internal structure minimum competencies in which a level of needs appears and how to cover them through a rigorous accounting and statistical system. The achievement of this objective, that of financial sufficiency, requires that the resources available to the administrations grow annually at the same rate as their needs, but this is very difficult to happen no matter how satisfactory the system of information channels is, although the elasticity of adaptation is a necessity in all administrative management, in the sense of being in accordance with the variations experienced by economic activity.
Finally, the system must be such that it generates interterritorial and intergenerational solidarity, given that the principle of horizontal and vertical equity itself demands it. To achieve this goal, a policy of equalization funds is necessary, distributed inversely to the fiscal capacity of the municipalities and directly to their fiscal effort.
In short, the system must have a general framework that allows ample room for legislative, regulatory and executive development. For this same reason, a specific regulation on the composition, percentage of participation of the different social groups, forms of access and characteristics of the governing bodies is urgent. It is also necessary to ensure that the definition of the basics is not left freely available to prevent the powers of each institution from being left without content or unconstitutionally curtailed and to ensure that the closure of the system does not remain in the permanent ambiguity that would entail recognizing the central power's powers to surprisingly oppose to the rest of the levels of government as a basic norm any kind of legal or regulatory precept, regardless of its rank and structure. Everything else is theory.
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José Miguel González Hernández
Consulting Director
Corporation 5
