Thomas Piketty: at the heart of the "Catalan crisis", the "new rules of fiscal decentralization"

Home"TO THE ONE"Thomas Piketty: at the heart of the "Catalan crisis", the "new rules of fiscal decentralization"
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Thomas Piketty : au cœur de la « crise catalane », les « nouvelles règles de décentralisation fiscale »

In his column, the economist explains that "by choosing to share 50-50 income tax with the regions, Spain has gone too far.

Chronic. Is the Catalan crisis due to an excess of centralization and the brutality of Madrid's power? Or rather to a logic of widespread competition of territories and countries that has already been much too far, in Spain as in Europe, and which leads to ever more bidding to the one-for-all?

Let's go back. To explain the hardening independence, it often evokes the decision of the Spanish Constitutional Court to invalidate, in 2010, the new statute of autonomy of Catalonia, following the multiple appeals filed by deputies of the Popular Party. In fact, even if some of the measures relied on by the judges posed serious substantive problems (in particular on the regionalization of justice), the method used was quite displeasing, all the more so since the statute had been adopted in 2006 by the Spanish Parliament (then under socialist majority), as well as a referendum in Catalonia.

One of the most decentralized countries in the world

We forget, however, that the new rules of fiscal decentralization were validated in 2010, for Catalonia as for all the Spanish regions. However, these rules, which apply since 2011, already make Spain one of the most decentralized countries in the world in terms of fiscal and budgetary, including when compared to federal states of much larger size.

In particular, since 2011, the tax base has been split 50-50 between the federal government and the regions. Specifically, in 2017, the income tax rates in the federal budget ranged from 9.5% (for annual taxable income of less than € 12,450) to 22.5% (above 60,000 euros). If a region decides to apply the same rates for its share, then taxpayers in that region will pay income tax rates in the range of 19% to 45%, and revenues will be shared at 50%. 50 between Madrid and the region. Each region may also decide to apply its own bands and its own additional rates, higher or lower than the federal rates. In any case, it receives the corresponding revenue and no longer has to share it with other regions.

Such a system poses many problems. It undermines the very idea of ​​solidarity within the country and amounts to opposing the regions to each other, which is particularly problematic in the case of a tool such as the income tax, which is supposed to make it possible to to reduce the inequalities between the poorest and the richest, beyond regional or professional identities. Since 2011, this system of internal competition has also led to dummy and fictitious tax domiciliation strategies for wealthy households and businesses, which may ultimately undermine overall progressivity.

By comparison, income tax has always been an almost exclusively federal tax in the United States, which is seven times more populous than Spain, and well known for its commitment to decentralization and the rights of states. In particular, it has been the federal income tax which, since its creation in 1913, has provided the tax escalation function, with the highest income tax rates averaging more than 80% between 1930s. and 1980, and have stabilized a little under 40% since the 1980-1990s. Federated states can vote additional rates, but in practice they are very low rates, usually between 5% and 10%. No doubt the taxpayers of California (a state which alone is almost as populous as Spain, and six times more than Catalonia) would have liked to keep for themselves and their children half of the revenues of the federal tax; but the fact is that they have never succeeded (to tell the truth, they have never really tried).

Heavy responsibility of Europe

In the Federal Republic of Germany, an example closer to Spain, the income tax is exclusively federal: the Länder do not have the possibility to vote additional rates or to keep for themselves the least part of the revenues, what what the Bavarian taxpayers may think. It should be noted that the logic of additional rates at regional or local level is not necessarily detrimental in itself (this could allow, in France, to replace the housing tax), provided that it remains measured. By choosing to share 50-50 income tax with the regions, Spain has been too far and finds itself, today, in a situation where a part of the Catalans want to keep 100% of revenue by becoming independent .

Europe also bears a heavy responsibility in this crisis. In addition to the calamitous management of the crisis in the euro zone, especially to the detriment of Spain, decades ago we promote a model of civilization based on the idea that it is possible to have everything at the same time: integration into a large European and global market, all without any real obligation of solidarity and financing of the public good. In these conditions, why not try its luck by making Catalonia a tax haven in the Luxembourgish fashion? There is, of course, a European federal budget, but it is extremely small. Above all, it should logically rely on those who benefit the most from economic integration, with a common European tax on corporate profits and the highest incomes, as is done in the United States (one can also try to do better, but we are far from it). By finally putting solidarity and balanced development at the heart of its practices, Europe will be able to oppose separatism.

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Source: ©  Thomas Piketty: at the heart of the "Catalan crisis", the "new rules of fiscal decentralization"

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