Sunday, June 26, 2011

An Emerging Consensus on Taxes?

Following up on the US call for Central Americans to pay more in taxes so as to improve security in the region, Hannah Stone at InSight writes
But perhaps more significant that the offers of aid, or the promises to work together, were the signs that various countries in the region are moving towards increasing tax revenues in order to fund their own fight against crime, and strengthen institutions.
I hope this is the case, but I am not as optimistic as Stone. Presidents Funes, Colom, and Lobo want to raise taxes on wealthy individuals and businesses. However, they will have to convince congress to raise revenue. None of them have an absolute majority needed to raise taxes and there's little evidence that the other political parties are ready to vote for increased taxation. It's not even clear that their own political coalitions will go along. 

In addition to skeptical congresses, there does not seem to be much support in any country's business sector to raise taxes (Guatemala, Honduras). And from what I can tell, no president has much power over the business community to convince them otherwise. Perhaps there's a consensus among the region's presidents to raise taxes to fund security (who would say otherwise), but I don't see much evidence that there is a broad based consensus emerging.

Finally, she ends with 
But a major stumbling block in the way of any plans to raise taxes in the region is the level of citizen distrust of governments. Any plans to spend more would have to be accompanied by efforts to make that spending more transparent and efficient, in order to convince the public that it is worthwhile.
I don't think that convincing the public is the main stumbling block. If she said elite recalcitrance rather than a general distrust of government among all citizens, then I might be more inclined to agree. And I'm just not convinced that Central American elites will come around on paying more taxes when the government becomes "transparent and efficient." Some of them perhaps, but there's little to indicate that Central American elites will ever be willing to increase government revenue through raising taxes.

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