Tax Reform Debate Rages

By David Simmonds 

Mexico has an inefficient tax system which has resulted in federal revenues that amount to around 10 percent of its gross domestic product, one of the lowest rates in Latin America. President Calderon has wisely declared his intent to reform the rate structure and to target the huge population of tax cheats. The Congress is now debating his proposal to raise Big Business taxes to 19 percent. Not surprisingly, the wealthy would rather not part with their money and are making a counter-proposal of 12 percent.

Further complicating the situation is the fact that oil revenues are declining rapidly as production declines in mature oil fields that are running out of product. Forty percent of government revenues are derived from the state-owned oil company, PEMEX. They need to do something very soon or the country will rapidly slide toward bankruptcy. At the 19 percent that Calderon has proposed, Mexico would still have one of the lowest rates in Latin Amercia and it would not likely cause multinational and domestic firms to move elsewhere, as claimed by the business faction.

Mexico is an emerging nation with tremendous resources, not the least being their hard-working, industrious people. But they need to make vast improvements in their infrastructure, education, health-care, a middle-class, and a general safety net for those in dire need. And that will take a serious investment.