Paradox of the income tax removal
28/03/2013 15:10
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The government decision that removes income tax for low wages creates a
contradiction to the limits of paradox. According to the draft law, an
employee who is paid up to 30.000 ALL monthly will have no income tax
obligations.
But those who are paid more than that will keep paying this tax to 10%. This creates an anomaly that will make an employed person to profit less, although his salary will be higher than someone else.
If one is paid 31.000, and keeps only 27.900, because 3100 are paid as income tax, another one who is paid 30.000 will keep the entire wage.
This calculation doesn’t include the contributions, which have a neutral effect, since it is paid for all wages. This paradox affects all employees who are paid from 30.000 to 33.000. The measure has two effects in the market.
The private sector will be pressured to avoid taxes, since the employees who are paid 31.000 or 33.000 will want their employer to pay them less.
The pressure is high, because it’s also in the employer’s interest to reduce the salary and pay less insurance. In the public sector, a higher ranked employee will be paid less than a lower one.
When answering to the accusations that he was copying the opposition’s program, the Prime Minister declared that this decision came after two years of discussions. But during this time, the staff that advises the Prime Minister for the fiscal policies has been unable to give a solution to this paradox that creates a large deformation in the market.
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