El Laffer Curvo
Spain figures out that if you really want enough tax revenues to pay for government services you need low rates, simple compliance, and broad reach. In other words, don’t make a few people pay a lot, but make a lot of people pay a little. At least my friend Arthur Laffer’s insights are being paid attention to somewhere while they’re being ignored in his own country. I doff my hat to the great man, and await the time when the U.S. relearns this lesson.
“It comes at a time of renewed market confidence in the Spanish economy, which has seen a surge in foreign investors buying into both sovereign bonds and the Madrid stock market. Spain emerged from recession last year but continues to suffer from towering levels of debt and unemployment.
“Details of the tax plan have yet to be finalised, but Madrid has made clear it wants to simplify the system and make tax collection more efficient. At the heart of the overhaul will be an election-friendly move to lower marginal rates on income and corporate tax. The headline reductions will be balanced by steps to broaden the tax base, mostly by eliminating some of the exemptions and deductions that currently litter the system.
““In Spain we have a system with high nominal rates but we collect only a small amount of taxes in relation to our gross domestic product and the overall wealth of the country. There is a problem with efficiency in the system. Fraud is an issue but it is also about the way the system works,” Cristóbal Montoro, Spain’s budget minister, said.
“He pledged to “improve tax revenues while lowering tax rates. We want to have a fiscal system that makes it more attractive to invest and makes the country more competitive”.”