taxpayers with an annual income of between 15,000 and 20,000 Euros they are most affected the inflation and personal income tax reforms. A spread leap in this group,”A very high percentage of every euro they earn over 15,000 goes to personal income taxAccording to a study conducted for the study, real purchasing power decreases as prices increase. AssadEcPol by the head of the tax board of this institution and the Treasury inspector, Francis of the tower; And carlos victoriafrom the Complutense University of Madrid. The solution they propose is to deduct that portion of the difference between income withholding and the amount of wages to be paid to each taxpayer.
They also declare that at these levels, some taxpayers are not liable to pay taxes for equal income, while others are liable to pay taxes if there is more than one taxpayer. If the Treasury hadn’t adjusted the tax rate, it would have benefited about 9,000 million. personal income tax to inflationdespite admitting that it would be too costly to fully adjust to the rise in prices.
De la Torre denounces the state of these incomes when there are multiple payers – a situation where there are about 1.4 million taxpayers in 2020. For example, a taxpayer earning €15,000 without withholding tax normally does not have to file a declaration (for a single taxpayer, the obligation to declare starts at €22,000). Thus, your final tax is zero. However, if you have two payers and both have paid you more than 1,500 Euros, you must make a statement. And not to keep him in these cases will have to pay 387.22 euros.
The study explains that the tax’s progression through the marginal rate has a flaw in its design that leads to “irregular” behavior: “it goes from 0% to 15,000 euros to increase 43 percentage points at low income levels (the rate is highest incomes), then it will be reduced again at middle incomes”. An example: If a taxpayer whose tax base (taxable amount) is 15,000 euros is increased by 1,500 euros (10%), then 645 euros (marginal rate 43%) is deducted under the current system. On the other hand, 26,000 earners with a 10% increase will pay a marginal rate of about 30% for this additional income.
In an environment of high inflation, these taxpayers they will hardly ever see their actual purchasing power updated because most of the rises will be affected by it high marginal rate. In the example of €15,000 with a 10% salary increase, where the average inflation recorded last year was 8.4%, “going from €15,000 net to €15,855 does not meet what is needed to maintain purchasing power (which would be €16,260)”, De la Torre and confirm Victoria.
The government announced in September that the minimum income tax exemption has been increased from 14,000 euros to 15,000 euros per year. The last personal income tax reform in 2022, activated in 2023, joins the one approved in 2018 to reduce taxation for the lowest income group. Both reforms consolidated two different rates for those who fill and those who don’t.. While this is generally an advantage, it leads to distortions and unfair situations in personal income tax, universalization of the declarationDe la Torre says this will make it easier to take a census, for example, for those benefiting from a minimum vital income (IMV). And from this it follows that by overcoming that hurdle,Lower-middle incomes support the highest tier due to the jump in the IRPF segment.. In the current context of high inflation, it is an increase in real purchasing power that does not imply a proportional increase in purchasing power.
“The real economic capacity of families declines with inflation, but in parallel, effective withholding rates on pensions and personal income tax on salaries are increasing, which predicts higher effective final rates,” the study concluded. Income tax collection, already exceeding 80,000 million euros in 2021, is breaking records. “In 2021, although it has not yet reached the 2019 GDP level, its collection has reached its maximum in the historical series and continues to grow according to 2022 data.”
The authors argue that, as some political forces argue, the entire personal income tax should be adjusted and adjusted for inflation, has a significant cost. until 2022 means giving up collecting around 9,000 million eurosIt is more than the deficit, which is almost one point more than GDP. The second issue is that this amount of lower collection, by definition, means greater spending capacity for households, which fuels inflation. In any case, De la Torre Adaptable to the average where wages increased between 2% and 2.5%.