Roberto Salinas Leon on Tax Resistance in Mexico

From El Economista (original article by Roberto Salinas Leon, translation mine):

Tax Resistance

A friend of a friend had the opportunity to mention a fiscal dilemma to us that he is presently living through: he does not know if he should formally organize his personal finances so that he operates under the Mexican jurisdiction or the American jurisdiction. “If I decide to live there and pay taxes there, I must live with the savage idea that my taxes are financing a war in Iraq or that they are being used to construct a border wall.” However, on the other hand, he tells us that “if I decide to live here and to pay taxes here, then I have to swallow the even more savage idea that my taxes end up financing the real estate adventures of ‘precious governors’ or similar fabulous accumulations of riches.”

The dilemma is as much moral as fiscal. If we generalize the case and we take it to its ultimate conclusions, we will be faced with a phenomenon that may be called tax resistance — that is to say, the act of avoiding taxes, up to evasion of them, born less from the culture of tax evasion or from the inefficiency of the collection system, and more from the generalized perception that to contribute, to generate, to pay taxes entails an ultimate opportunity cost. If they are going to rob me, it is better that I leave them.

Is an act of tax resistance justified? That is the principal question that is behing the dilemma described above.

In fact, there are several factors behind the low levels of tax collection in our country, that is to say several causes that answer the question of why we do not pay our taxes. One of them, certainly the most visible, is the complexity of the tax system. Even with the simplification efforts, we continue living with preferential rules, complex universes of deductions, an interminable bureaucracy, and arbitrariness in how the standards are applied — in short, with a hyper-complex barrier of rules and regulations, that in addition change in turn with each miscellany.

Another factor, already more relevant, is the perception of the terrible use of the public funds, of the tax resources — social funds that never arrive in society, corruption between the public and private sectors, preferential exemption rules, up to the high salaries that occur in the bureaucratic kingdom.

On the other hand, it is difficult to defend the legitimacy of tax obligations when there are few who generate them and many more who do not, and overall when the return on tax investment is so low. The problems with insecurity, with daily violence, with administering justice, are reflections that the political process is not fulfilling its basic function to protect the members of society from crime, insecurity, and injustice.

I would add, at the same time, the influence of an inevitable culture of cynicism, that comes from how bad public policy in the last decades has affected household standards of living. If my standard of living is reduced by an average of 20% in our generation, what incentive do I have to contribute to the main cause of this contraction in my standard of living?

Many Mexicans prefer to pay “por fuera,” that is to say, to resort to the parallel law of inspectors, staff police, the corresponding judges, who discharge their obligations in the formal system. It is an indicator of tax resistance, born from the high opportunity cost of giving up resources in a way that is percieved as completely unproductive.

Very important steps to improve the federal budget system occurred to this administration. This is the beginning of a true fiscal reform: to improve the forms in which expenses are executed. That will have much more to do in future administrations against the phenomenon of tax resistance.

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