Tuesday, July 03, 2012

World Bank: progressive income taxes 'grossly underused' in Latin America

The World Bank's latest edition of its new publication Inequality in Focus states some things that we've said before, but bear repeating.
"The redistributive potential of personal income taxes is grossly underutilized in the countries studied. although pro- gressive, these taxes represent a small share of total revenues, and some countries do not even have personal income taxes. any tax reform in the future should examine the redistributive potential coming from higher income taxes on top earners."
And, as we keep repeating, a large share of personal income taxes and other taxes that ought to be shouldered by the wealthiest sections of society get evaded and avoided. The World Bank continues:
"When indirect taxes are taken into account, the net income of the poor and the near poor can be lower than it was before taxes and cash transfers. . . . Indirect or consumption taxes (mainly Value Added Taxes or VATs) are regressive because the poor consume a higher share of their incomes, and therefore pay a higher proportion of what they earn in consumption taxes than the rich."
Not rocket science, but this isn't what the purveyors of the Washington Consensus have been telling us for many years.

Elsewhere, note this statement just out from World Bank Managing Director Mahmoud Mohieldin:
“Until recently,” Mohieldin told participants, the mantra was, “Growth will trickle down and we can always clean up afterwards.” Such economic assumptions have been debunked in recent years, he said.
In light of the crisis, common sense seems to be breaking out all over the place, supporting what we and many of our allies have been saying for years. We have the IMF saying (albeit timidly) that it's time to think seriously about cross-border capital controls. We have The Economist saying (timidly) that it's time to tax capital. We have the OECD saying that it's time for automatic information exchange. We have participants from around the world challenging the OECD's dominant transfer pricing system. We have a Conservative British Prime Minister calling aggressive tax avoidance 'morally wrong.' We have, back to the main subject of this blog, tax justice breaking out in Latin America.

The wind is in our sails.


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