The why of taxes in times of economic crisis

Although taxes for many, I should say for most people, sound tedious, technical, and away … actually, like it or not, they are part of our daily lives!.

Perhaps the problem starts from the fact that we have never been explained for what and why of taxes, and probably we see them more as an imposition of the Tax administration, rather than a democratic duty of all citizens (in the case of Spain it is included in art. 31 of the Spanish Constitution).

With the global crisis we live, it seems that taxes “weigh” even more for citizens. However, the taxes are the ones that finance the public offering of services and benefits. In Spain, according to the data from the last 2010 Fiscal Barometer of the Institute for Fiscal Studies, there is a moderate satisfaction with this offer, although it seems that health is the public service which almost only justifies this payment of taxes.

Doubts raised the question is there a need of paying taxes for services and public benefits? or do the terms of current fiscal exchange(taxes on services) no longer justifies the tax burden we bear?.

The tax policy is to use taxes, along with other fiscal instruments for attaining economic and social objectives that they wish to promote. And so, in a social and democratic State of law as the existing one, the public expenditure programs are those that determine both the degree of fiscal pressure (how many taxes to pay) and well as the traits and characteristics of the different tax figures.

However, it is clear that any tax system is in permanent reform, to the extent that depends on the country’s own productive structure, its social structure and political decisions of the ruling political class. Today, in Spain we have high unemployment rates (24.44%, according to the first quarter of 2012 of the Labor Force Survey) and we suffer the need of public spending cuts, everything that clearly makes policy decisions on tax matters.

The efficiency of all tax policy mainly depends on the operation of the Tax Administration itself, as well as on the tax compliance degree among taxpayers. Currently, the functioning of the Spanish Tax Agency as manager of this tax policy seems to be criticized (especially for its inefficiency when fighting fraud) as well as it is producing more tax resistance among citizens (increasing tax fraud).

It seems that so far the support of the current system was justified to the extent that most people had a job and the tax burden was “manageable” because there was not much resistance to compliance. However, we live a new economic, political and social situation very different from what we lived when the system was designed, so it seems necessary to reconsider a new one in which the collection route are re-balanced and/or the public spending programs are restructured. So just when our economy, our jobs and our policy are destabilized we consider how many taxes are we paying and what we are paying them for?, Isn’t now the time when it is necessary to show “solidarity” to preserve the current welfare State?.

In short, the main question that should be asked is: towards what State of welfare do we want to go?: to preserve the current one, reduce it to public services and basic social services (health / education / social services), or to move towards major privatization ?. Without any doubt this is the main thinking when reviewing how many taxes we are willing to pay and how to allocate the public spending.

I´ll wait for your comments!

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