Tax Policy Debates in Europe
The New Popular Front in France and the government of Isabel Díaz Ayuso in Madrid are both grappling with complex tax policy decisions. As the second round of legislative elections approaches, the New Popular Front's proposal to increase the progressivity of the income tax to 14 brackets has drawn criticism from experts. Jean-Luc Mélenchon's earlier program suggested a scale ranging from 1% for incomes up to €10,292 to 90% for incomes above €411,683. The aim is to generate an additional €5.5 billion in revenue. However, experts warn about the potential economic consequences and feasibility of such measures.
Tax Cuts and Economic Growth in Madrid
In contrast, the Community of Madrid, under Isabel Díaz Ayuso, is contemplating a half-point cut in personal income tax, contingent on the results of previous tax cuts. Rocío Albert, the Minister of Economy, Finance, and Employment, acknowledged the limitations of continuous tax reductions. The policy, initiated in 2004, has already reduced taxes by over €65 billion. The government is cautious, waiting to see if the 2022 tax cuts have led to increased revenue before implementing further reductions. This approach is based on the Laffer curve theory, which posits that lower taxes can lead to higher economic activity and, consequently, higher tax revenues.
Impact on Residents and European Law
The Madrid government also plans to allow foreign residents who move to the city to deduct up to 20% of their investments from their regional tax quota, even if these investments are made outside Madrid or Spain. This measure aims to attract talent to the region. However, it must comply with European law, which prohibits restrictions on capital movements and payments between member states and third countries. The policy aims to ensure that these new residents declare their taxes in Madrid while contributing to the local economy.
