The Debate over Tax Reform in El Salvador

Street vendor in El Salvador (Wikimedia Commons)O

Economists, opposition lawmakers and San Salvador's conservative conservative daily El Diario de Hoy have expressed strong objections to the new tax reform approved in El Salvador this summer.

A central goal of the the reform promoted by Salvadoran President Salvador Sánchez Cerén is to increase taxes on the wealthier contributors to provide the government with new revenues to boost expenditures on social services, education and community facilities. Th reform is is projected to raise the government an additional US$160 million annually. Read more from Benjamin Witte-Lebhar in this week's issue of NotiCen. (This move to boost taxes on wealthier contributors to allow the government to boost spending on social programs is strikingly similar to the argument that Mexican President Enrique Pena Nieto made when pushing his tax-reform plan in Mexico at the end of 2013).

Critics contend the tax hike will not only affect the wealthier taxpayers and the larger businesses, but small and medium-sized ones as well, and will effectually diminish their ability to grow and hire more workers. This, in turn, would create a negative ‘trickle-down’ effect that will hit even the poorest sectors of the economy. El Diario de Hoy, for example, argues in an editorial that that the pupuseras who sell stuffed tortillas on street corners and the minuteros (who peddle cell phone minutes) on the streets as well as the small store owners would be the ones paying for the nation’s new tax plan. The bottom line, says the editorial, is that  that, despite the popular belief that this tax reform was created so “those who earn the most will pay the most," the new system will have an effect on everyone, not just the wealthy elite.

Palacio Nacional, San Salvador

This argument is a classic and well-worn debate over the benefits of supply-side economics, and has served as a fundamental roadblock to socialist reform throughout Latin America, and elsewhere, for decades. President Sánchez Cerén, in contrast, refers to these opposing opinions as untruthful tactics to rally the public against the reform. 

There is also a debate about managing the economy in Panama, where conservative president Juan Carlos Varela is facing criticism from other conservative politicians for pushing through a measure to control food prices. Despite an inflation crisis that has driven the price of basic foodstuffs up more than 30%, members of the Cambio Democrático (former President Ricardo Martinelli's party) have hesitated to support the measure, citing possible side effects that include food shortages, black markets and even rioting and destruction of property. Read more from Louisa Reynolds in this week's edition of NotiCen.

  -Jake Sandler 

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