The great misunderstanding of personal income tax

In April 2020, shortly after the outbreak of the pandemic, 159 million American households received a $1,200 check (plus $500 for each child). This measure, known as economic impact payments or stimulus checks, was repeated in December 2020 and March 2021. Within a few days, the Trump administration managed to reach a large majority of American citizens. And the first to receive the aid were those who already had their tax information registered because they had filed income tax returns in previous years. The payments went directly into their bank accounts. A swift measure that provided millions of families with a small financial reprieve at a time of extreme emergency.

One of the main functions of a policy measure is to ensure it reaches all the people it was designed to serve. But often, seemingly small details, such as not knowing an up-to-date address or not having a registered bank account, can cause even the best aid measures to fail. This is especially crucial in times of emergency like the one caused by the pandemic or the DANA, when the ability to ensure that aid reaches everyone quickly and efficiently is critical.

In it debate on the increase in the minimum wage this yearThe main element is its tax implications. The improved economic situation of many families also forces them to file their tax returns. Often seen as a process to be avoided, it is, from a social perspective, a blessing: It allows us to have a more realistic picture of the income of all citizensAn administration that better understands the distribution of its revenue can design more efficient interventions, adjust aid, and ensure that resources are distributed more equitably.

Furthermore, those on lower incomes may benefit from filing a tax return. This is the case with the minimum living income (IMV), where all beneficiaries and their cohabitants are required to file a tax return, despite it being tax-exempt. Filing a tax return for those on lower incomes may also result in a refund, as tax deductions or family minimums may be applied, which can reduce the tax burden.

The Spanish and Catalan tax systems are complex and feature higher marginal rates than many neighboring countries, but with lower revenue collection. This is not only due to tax fraud, but also to the multitude of loopholes and tax deductions designed to favor middle and high incomes. Tax breaks, which should be a tool for redistribution, end up neglecting low-income families.

Filing taxes is not synonymous with paying (more) taxes. In this sense, measures such as the reduction in the regional tax bracket agreed by the government and ERC can facilitate this process, but we should also explore new mechanisms such as refundable tax deductions or creditsThis would allow low-income families to truly benefit from current deductions, not only improving the fairness of the system but also contributing to a more efficient distribution of benefits.

Too many voices in the public debate consider "avoiding tax returns" a benefit for people with lower incomes. And this is a mistake. Filing taxes isn't just about paying taxes: it's about being part of a system that should benefit us all.