The 2021 Income Statement campaign is approaching and it is a good time to ask ourselves who is responsible for the tax burden in Spain. The answer is likely to put an end to some topics installed in the collective subconscious. A study by the European Commission maintains that it is the highest incomes (and not the average) who pay for social cohesion. And not lightly. The personal income tax burden is significant and is concentrated in the upper part of the income distribution: the 10% with the most resources are the ones who are in charge of economic integration.
Yes. In Spain, 90% of the population receives more from the state than it gives. Only the richest 10% contribute more than they receive.
Redistribution through the tax system. State redistribution through the tax and benefit system tends to go from high-income households to low- and middle-income households. This can be seen in the net transfers (social benefits acquired minus direct taxes and social security contribution paid). These benefits tend to be positive for low- and middle-income households and negative for high-income households.
In our case. In Spain, households in the nine lowest income deciles are, on average, net recipients of the tax and benefit system, that is, the social benefits received are greater than the direct taxes and social security contributions paid. Households in the top remaining percentile are net taxpayers, implying that tax payments exceed benefits received.
The IRPF. Direct taxes represent the most powerful tool to reduce inequality. Direct taxes tend to be redistributive due to their progressive nature, that is, the tax burden increases with the increase in disposable income. All things being equal, a one percent increase in direct taxes reduces income inequality by about 0.15%.
Another study, by Funcas, with another methodology, indicates that 70% improve their participation in income thanks to taxes and benefits, the 8th decile is neutral, and the richest 20% is the one that worsens with taxes and transfers . Source: https://t.co/uohzinYyMW pic.twitter.com/FAekvv1tVt
– J Moisés Martín 🇪🇺 🇺🇳 (@jmoisesmartin) April 7, 2022
income inequality in Spain it is high. The crisis produced an impoverishment of households with fewer resources. However, once the progressivity of personal income tax is applied (up to 45% the general rate), the result is very different. Income inequality in Spain is not particularly high. In other words, there is a huge gap between the wages paid by companies (primary income) and what taxpayers finally earn, including social transfers. The reduction of the original inequality is due to the intervention of the public authorities through the instruments of fiscal progressivity.
In particular, personal income tax, whose tax structure makes those who obtain higher incomes pay more, ranges between 19% and 45%. On the opposite side of the income distribution is the richest 10%, whose income stream has grown in relative terms. In fact, the contribution of the richest 10% reached 48.09% of income tax collection in recent years. Or put another way, while low incomes have lost weight in personal income tax, taxpayers with higher incomes have gained it.
The 10% contribution. Specifically, the richest 10% in terms of income bear 47-50% of the tax burden in income tax, while they obtain, on the contrary, 25-26% of income before taxes, according to Funcas studio. The report indicates that more than 80% of the global distribution of the tax is contributed by this social group. The low contribution made by income from capital stands out because tax rates are hardly progressive, contrary to what happens in the case of income from work.
On the opposite side of the income distribution is the richest 10%, whose income stream has grown in relative terms. In fact, the contribution of the richest 10% reached 48.09% of income tax collection in recent years. Or put another way, while low incomes have lost weight in personal income tax, taxpayers with higher incomes have gained it.