Lower personal income tax for low-income people?

It seems that the administrations, and in particular the Generalitat, based on their own powers, study reduce the taxation of low incomes in personal income taxThe controversy arose from the recent increase in the interprofessional minimum wage, which was implemented without touching the exempt minimum. This means that, marginally, more people in the low-income group must file income tax returns because they are not covered by that exemption. This issue is on the agenda of the Spanish Parliament. In contrast, the Catalan Parliament is undertaking the reform by lowering the rate for low incomes (apparently by a small amount, from 10.5% to 9.5%, subject to final approval). Thus, if this is the intention, the best way to reduce taxation for those who earn little, given the current powers of the Generalitat (Catalan government), is indeed to lower the tax rate for these incomes, and not by exempting them from the obligation to file, as some parties claim. Let me explain. Filing an income tax return is one thing, and paying personal income tax is another. Exempting them was a way to reduce administrative burdens, based on the assumption that filing a tax return is complex. But today, with withholdings and a minimum of computer technology, this burden is already reduced. And exempting from tax returns has more drawbacks than benefits. Anyone with income earned during the year should notify the Treasury; and, if applicable, not only avoid paying taxes, but also receive a "tax credit." The declaration of personal and family circumstances is simply a snapshot of the taxpayer's reality, allowing them to fine-tune both the taxes payable and the right to receive benefits. Using deductions, bonuses, and differentiated rates, it is possible to adjust taxes, subsidies, and universal benefits, but tailored to each individual's situation. It's not about raising more revenue, but rather, within a neutral budget, being more careful about who pays and who receives.

Raising the current exempt minimums, equating them to the minimum wage and thus eliminating the obligation to file a tax return, would prevent knowledge of the situation of each potential taxpayer or beneficiary, making tax justice more difficult. We would not have a complete picture of each taxpayer's contingencies, thereby losing a control mechanism (between what is reported as being received and what is spent), and it would prevent the combination of public policy measures from the same tax return, which, to be effective, must be able to impact the most needy. Tax treatments need to be more precise than the "all or nothing" approach established for specific income thresholds or according to levels when certain limits are exceeded. Tax returns should make it possible to specify measures based on the composition of income and expenses; for example, in the case of applying co-payments or fees, equitably recoverable as deductible expenses only for a certain group of taxpayers, or expenses in favor of the most vulnerable, those with more family responsibilities... with the objective of improving the final purchasing power of the taxpayer. This was explained by the experts who drafted the recent tax reform proposal: "To improve equity, it is recommended to reduce the tax burden borne by the lowest incomes from work, increase the existing reduction and compensate them by increasing the fixed amount, in the concept of general expenses that the base must incur... the academic evidence that exists of its positive impact on the labor supply, especially in the decision to participate in the labor market" (point 2.1.2 of White Paper of the Committee of Experts, 2022). For people who earn little, the best policy is neither raising the tax-exempt minimum nor lowering personal income tax, but rather reducing the amount of net earned income they pay. However, this falls outside the jurisdiction of regional governments, and only the State can implement it.

As for those who do not receive income, they certainly should not—and cannot—file annual tax returns. They should be the focus of social policy, rather than tax policy, and under other derivatives.