Chile Follows the “Eat Your Own Tail” Socialist Recipe for Growth

EspañolChile does not appear to have learned from the mistakes of its neighbors. Instead of imitating their best traits, it copies the worst. The country led by Michelle Bachelet has up to now enjoyed a low tax burden, but apparently that is all going to change with a new tax reform bill, currently under consideration in Congress. The bill seeks to increase the tax rate for companies located within the country. Worst of all, according to a local survey, 67 percent of the population approves it. Chileans applaud the executioner that is condemning them to death.

The belief that further taxing the productive sector of your country will strengthen the rights and general welfare of the population is just like a snake eating its own tail hoping to survive.

The proposed reform has generated a huge controversy in Chile, and is one of the flagship measures of the current president. Its aim is to raise the funds necessary to carry out the deep educational reform Bachelet plans to implement in her remaining four years in office.

The ruling party also explained that they will try to move forward in terms of tax equity, “improving income distribution.” According to the policy, “Those who earn more will contribute more, and income from labor and capital should have similar treatment.”

Bachelet has said that the transformation of the education system will mean an increase in public spending. “In order to count on the permanent revenue that will allow these profound changes, a tax reform is required to ensure our fiscal sustainability,” stated the president.

Along these same lines, the Minister of Economy Luis Felipe Céspedes said the reform is crucial to fight inequality “because it will allow us to leap forward in education, level the playing field, and take advantage of existing, but squandered talent.”

It is clear to Céspedes that the state needs more resources to guarantee happiness, social welfare, and equal opportunities to all Chileans. He defended himself against critics by saying, “What we are proposing is something reasonable and not the disaster that some want to make it appear as.”

The reform gradually raises tax rates on businesses from the current rate of 20 percent to 25 percent over time (21 in 2014, 22.5 in 2015, 24 in 2016, and 25 percent beginning in 2017). It also eliminates the Single Tax Fund (FUT), a way companies have delayed paying taxes in the past if profits are reinvested.

“An instant depreciation mechanism will be implemented, which consists of businesses being able to deduct from the total investment earnings for the current year, benefiting mainly small and medium-sized firms, and that considers a mechanism to monitor the potential distortions among production sectors with different intensity in the use of capital investment”, says the official reform statement.

Last week, The Wall Street Journal published an opinion column by Mary Anastasia O’Grady about this proposed reform and its consequences to Chile’s productivity.

But let’s be honest, what is so surprising? Socialists — through either ignorance, negligence, stupidity, or convenience, your choice — will do socialist things and make socialist decisions. Chile’s economy will fall, and this should not be news for a party that governs both houses of Congress and has the Chilean Communist Party as part of its coalition.

The way the Chilean ruling party has attempted to shape the narrative of this debate through its chosen rhetoric is quite revealing. A video released by the government has tried to explain why the tax reform will not affect the middle class. It uses polarizing language, making clear distinctions between “us” and “them.” “They” are the big companies governed by ancient, pseudo-feudal families, who take in the vast majority of these companies’ profits. The “we” is an appeal to the ordinary citizen — salaried workers, the retired, laborers, and the young student.

Once again, it is “they” who are destroying equality, the Mecca that these government officials seek. However, they do not understand that the economy is not a zero-sum game. Some do not win at the expense of others. Wealth can and must be created, but this is only achieved in a free and open republic. As long as these false narratives continue to persist, these socialists will continue to destroy countries.

Translated by Rebeca Morla.

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