Lower taxes for the general public

Ritstjórn Uncategorized


Fiscal developments under neoliberalism can be defined in several stages. First, taxes on capital owners and large corporations were reduced with the promise that this would not lead to a loss of revenue for public funds because tax cuts would stimulate the economy so much that capital owners and corporations would actually pay higher taxes even if the tax rate were reduced. In addition, a reduction in taxes on capital and business owners would reduce tax evasion and avoidance.

Of course, this did not work out. At first, public services were not cut, but debts were accumulated in the confidence that tax revenues would soon rise. When this did not happen, it was proposed that the Treasury’s assets be sold to the wealthy in order to reduce interest costs and reduce debt. The wealthy were reportedly offered to buy public property with the same money they received due to the tax cuts, and the goal was to finance the tax cuts.

Of course, this did not improve the Treasury’s operating position. There was still a hole after the tax cuts for the rich. The Treasury spent more than it earned because the catch had been reduced. It was also decided to charge for services that were previously free of charge, services that had been considered to be paid for by the taxes. This applied to the health service, the education system and then almost all public services.

By introducing payments into the public service, a step towards its marketisation and privatization was prepared. If the service was not part of the co-insurance we pay for with our taxes, if it is like any other service we pay for; does it matter who runs the service? Was asked. And the wealthy, who had previously been mainly in the business world, increasingly moved into areas that had previously belonged to the social arena.

Privatization did not reduce the cost to the Treasury, on the contrary, dividends were added to the owners of the companies that took over public operations. The Treasury was thus in a bad position after the tax cut for the rich, despite the sale of assets, tariffs for public services and privatization. Then there was nothing left but to raise taxes on the population, let them finance a tax cut for the rich with an increased tax burden.

This is the fiscal storyline of the neoliberal years. This did not happen exactly in that order; tax increases for the population began soon and before privatization was in full swing; but this describes well how the cogs of neoliberalism worked.

The Socialists intend to reverse the development of neoliberalism, restore public power from the wealthy, wealth, property and resources, and rebuild public services. But here we want to explain how the Socialists intend to lighten the tax burden of the neoliberal years on the public.

V. Public tax cuts: Poverty should not be taxed

When withholding tax was introduced, people on the minimum wage paid no taxes and thus retirees, the disabled, students and people had lower incomes than the minimum wage. Today, those on the minimum wage pay about 17% of their income in tax, more than ISK 55,000. However, it is known that people on the minimum wage have great difficulty in making ends meet.

People on the lowest disability benefits, 240 thous. kr. per month, pays almost 25 thous. kr. of them in tax. People who are supported by municipalities receive almost 213 thous. kr. per month and pays more than 16 thous. kr. in tax. This is completely unprotected.

Before the neo-liberal era, none of these people paid taxes. It is immoral for the Minister of Finance to go to the poorest people, people who do not have food for the rest of the month, and take money from it to run the state treasury. A treasury based on such injustice is fundamentally immoral.

The Socialists completely reject the idea that poverty is taxed in this way. It should be established in law that it is not permitted to collect income tax or excise duty from people who have a lower income than the normal cost of living. The tax system needs to be changed by lowering the minimum tax level and raising the personal allowance, but raising the tax rate in the upper levels so that tax cuts for people below the poverty line do not reduce the tax burden throughout the tax bracket.

V. Tax cuts for the general public: Taxes on medium and lower incomes reduced

The income tax on the entire population was raised dramatically during the neoliberal years. This can be seen, for example, in the fact that the budget for 1991 assumed that personal income tax would be around ISK 12.8 billion or ISK 42.9 billion at current value. The budget for 2021, on the other hand, assumes that personal income tax will return ISK 186.6 billion to the Treasury.

Wages have, of course, risen along the way, but not that much. If the income tax had followed wage developments, it should be around ISK 83.5 billion this year. The difference is more than one hundred billion, 103.1 billion ISK, which the state collects more from workers today than thirty years ago. This clearly shows who paid for the tax cuts of capital and business owners. And there were no small amounts that were transferred in between.

Another way to highlight this is to point out that in 1991 it was assumed that 12.6 per cent of the Treasury’s revenue would come from personal income tax. Today, this ratio is 24.1%, despite the fact that capital income has been taken from other income. By this measure, tax collection has gone from ISK 97.5 billion to ISK 186.6 billion. The personal income tax was 3.2% of GDP in 1991 but will be around 6.0% this year. No matter what measure is used, tax collection by the public through personal income tax has almost doubled in the neo-liberal years, the years in which the Independence Party claims to have reduced taxes.

The ratio of Treasury revenue to GDP in the 1991 budget was 25.3%, but this year it is expected to be 24.7%. The difference is very small, ISK 18.8 billion. The main fiscal theme of the neo-liberal years was the shift of the tax burden from the rich to the general public. The tax cuts were all for the rich. The public received only tax increases.

If we take the perspective of the individuals, the tax-free limit in 1991 was 192 thous. kr. at current value but they are today almost 162 thous. kr. During these thirty years, however, wages have risen significantly above prices. Based on the wage index, the tax-free limit was just over 374 thous. kr. in 1991 but are as previously stated almost 162 thous. kr. today. The difference is striking, frightening.

Today, the minimum wage is 351 thous. kr. in a month. Of these, people pay almost 60 thous. kr. in tax or about 17%. In 1991, no tax was paid on the lowest wage, 0%. The low-income people have lost 720 thous. kr. per year in the tax in excess of what it paid for neoliberalism.

Today, the median total salary is around 750 thous. kr. in a month. Of these, people pay about 211 thous. kr. in tax or 28.2%. If we bring this wage back to 1991 with the wage index and tax it according to the tax law in force at the time, the tax rate would be 19.9%. The average person has lost 747 thous. kr. per year in the tax in excess of what he paid for neoliberalism.

The Socialists’ offer is to unwind the tax changes of the neo-liberal years and reduce the income tax burden on medium and lower incomes by 700 thousand. kr. in a year. This is not a more revolutionary idea than that it would only bring us to the justice that prevailed thirty years ago and had prevailed for decades.

V. Tax cuts for the general public: Child benefits increased

One of the hallmarks of the neoliberal years is the breakdown of child benefits. And this goes hand in hand with the weaker economic position of young people, which in turn is the result of the collapse of the entire housing system and the weaker position of workers in the labor market. This has undermined the living standards of young people, many of whom are on the fringes of the housing market, where housing costs are high, and on the fringes of the labor market, where wages are low and employment is precarious. Young people have smaller assets but still often owe a lot, for example student loans. And young people have a heavier child support burden.

In this light, it could be assumed that child benefits had been increased significantly during the neo-liberal era. But that was not a greeting at all. On the contrary, child benefits were cut sharply.

According to the budget for 2021, just under ISK 14 billion is to be spent on child benefits this year. There are about 161 thous. kr. per child. In 1991, before neoliberalism began to erode the tax system, child benefits were just over ISK 16 billion at current value, or almost ISK 224,000. kr. per child, but then the age of consent was 16 years and not 18.

But it is more natural to target these variables on the turnover of the economy than price changes. The child benefit was 1.2% of GDP in 1991, but this year it is just over 0.4%. In order to increase child benefits so that they will be the same proportion of GDP this year as in 1991, children would have to be paid ISK 37.5 billion this year. Child benefits have in fact decreased by ISK 23.5 billion during this thirty-year period, among other things to finance tax cuts for capital and business owners.

In comparison, it would cost around ISK 52.9 billion to give all children in the country a personal discount that would be payable if the parents did not use it. We should aim for that in a few safe steps so that all children receive child benefit of over 50 thousand. kr. per month, the same amount as adults receive in personal discount. In part, the increase would be financed by steeper tax levels and high-income brackets, so that parents with incomes in the third tax bracket would be equal behind all families with children with good middle-income incomes and would be much better off.

V. Tax cuts for the general public: Housing benefits increased

Housing support also fell during the neoliberal years, but not as much as child benefits. Interest rate subsidies were 0.63 per cent of GDP in 1991, but housing support is now 0.44 per cent of GDP. The difference is equivalent to the Treasury having to pay out ISK 19.7 billion in housing support, ISK 6 billion more than is the case.

The difference, however, is that in recent years there has been a more severe housing crisis than has been seen since the end of the war. The increase in housing costs has affected the household accounts of tens of thousands of middle- and lower-income households. Those squeezed between low incomes and high rents have been pushed into deep poverty or unbridled slavery. Many are in two, even three jobs to rent and food for the rest of the month for themselves and their children. Many homes are in a state of emergency. And therefore must be met with emergency measures.

Of course, the state must solve the housing crisis. On the one hand by building 30,000 social housing units over ten years, as the Socialists have proposed, and on the other hand, by measures to curb the rental market, as the Socialists will propose in their offer to tenants. But until these measures take effect on the housing crisis and the anarchy in the rental market, the Treasury must compensate those who suffer in the unrestricted housing market.

No one should have to pay more than a quarter of their income in housing costs. this means that low-wage earners with 351 thous. kr. per month and almost 282 thous. kr. paid out according to the current tax rules should not pay more than just over 70 thous. kr. in rent. If the situation in the rental market is such that, due to the inaction of the authorities, people with this income have to rent a small apartment for 230 thous. ISK, as is common today, the Treasury needs to provide these people with 160 thous. kr. in housing subsidy. The maximum grant today is over 32 thous. kr. does not come close to solving the problems of these people.

Such a high housing subsidy that flows from the state through tenants to landlords is a kind of blood money. They are like a ransom paid to bribes to free tenants from starvation. Of course, it would be more beneficial for the state to build housing to alleviate the housing crisis and free people and put a rental ceiling on it to protect tenants from rent. But until that is done, tenants must be supported out of poverty. It is not the tenants’ fault that the landlord is as he is; tenants are the people who will be exposed to the market, bear the cost of its embezzlement without bearing any blame for the situation.

The Socialists will pass on the costs of the collapse of the housing market to those responsible, the people who have ruined the entire housing system, and to transfer the money to tenants who have had to endure the consequences of the actions of the housing authorities.

V. Tax cuts for the general public: Tariffs stopped

Tariffs for public services are one of the tools of neoliberalism to transfer power and wealth to the rich. The purpose of the tariff is to market services that were previously outside the market, getting people used to paying for education and health care like any other service.

The levy is also intended to make a larger part of the population tax-exempt. The richest people consider themselves losing out on paying taxes, they pay more into the state treasury than they get back. In the post-war years, this applied to less than 1% of the population. But with income linkages and tariffs, a larger group has calculated on the same conclusion that it pays more to the state than it gets back. This is often miscalculated, as people are tempted to forget that they can lose their health due to illness, accident or age and underestimate the support of society, which is often difficult to identify in a simple calculation example. But neoliberalism has succeeded, with more people today estimating that the benefits of tax cuts will be greater than the increase in public services.

Tariffs are thus primarily political, part of a propaganda war, and have no social purpose. Healthcare that collects entrance fees will not be better run for it. And public services, primarily medical services and education, are not of the nature of controlling demand by price. There is a very small risk of people overusing this service, a much higher risk of people overusing it.

And that is exactly the result of the neoliberal years. The less well-off refuse health care and education because of the tariffs. The systems we built in the last century precisely to increase inequality between people are pushing for inequality today.

The state and our common funds are our common property. With public services, this acts as mutual insurance for the population and for society as a whole. It is better for everyone if we pay for medical care while we are fully healthy in the labor market. It is a completely wrong idea to charge people when they have become ill and have enough problems with their lives due to illness and its consequences, including a drop in income due to less work.

The same applies to education and other public services. It is natural that we pay for education when we have enjoyed it, after entering the labor market, rather than when we have little income in school.

A prerequisite for a strong society is free public services and infrastructure. It improves the living standards of the entire population and most of those with the lowest incomes, thus acting as an equalizer. And equality is the most important goal if we want to build trust, compassion and love within society.

But free infrastructure is also important for the economy. They encourage competition by lowering the start-up costs of companies, as all companies have equal access to infrastructure. Free public services provide companies with educated and healthier staff and take care of the children while the parents are at work. It was the experience of all countries in our part of the world that the vigorous development of free public infrastructure and services was a prerequisite for increased prosperity. The breakdown of this infrastructure during the neoliberal era is a threat to society.

The Socialists therefore completely reject all ideas about the marketing and privatization of society’s infrastructure and basic systems and are opposed to any tariffs for public services. Instead, we should begin a massive build-up of public infrastructure to meet the challenges of the future to promote employment and general prosperity here. This will only be done with societal goals in mind.

The first steps in this direction would be to make free use of the lowest income groups in health care, education and other basic public service systems; children, students, the disabled, pensioners and people on municipal support. And then take the next step with the aim of completely stopping charging for public services.

V. Public tax cuts: Socialist offer

The Socialist Party’s fourth offer to voters in this autumn’s election for a tax cut to the public includes a sharp reduction in the income tax on middle-income earners, including stopping the taxation of poverty, raising the personal allowance significantly, child benefits and housing benefits.

The precondition for building a just society in Iceland is that the tax burden will be lightened by the public and it will be moved to where it belongs. It is an equally urgent task to rebuild the support systems within the tax system, child and housing benefits. Such systems are a prerequisite for greater equality and for all the country’s inhabitants to flourish.

But the tax shift from the rich to the general public was not the only one in the neo-liberal years. At the same time, the tax environment for companies was changed so that it best served the richest capital owners and the largest companies, but much less self-employed, small companies and medium-sized companies. The tax system was in fact used to protect large companies from competition from the smaller ones and to reduce recruitment in all industries. The result was the financialization of the economy, which reduced the power of production and service companies. This is the sixth chapter in the Socialists’ offer to voters on the tax policy of the charity economy, on how to reduce taxes on small businesses and strengthen the economy below.

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