How clever 11

A somewhat original solution to fight tax evasion was just proposed by Ingrida Circene (Jaunais Laiks). What she offers is to tie provision of healthcare benefits to whether a person paid his or her personal income tax (PIT). An exception would be made for (registered) unemployed and certain other groups, however. According to Mrs. Circene, "this would be as a carrot, to encourage people to pay taxes". She refers to statistics that only 43% of working age population pay PIT. According to Diena, this proposal already received "conceptual support of the ruling coalition".

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At a fist glance it may all sound very nice and plausible - but only at a first glance. A bit more thinking about this proposal reveals that (i) it would little, if any, effect on tax evasion; and (ii) it would have some very awkward side-effects.

First, tax evasion (I mean PIT and social tax here) in this country largely works through paying "envelope" wages on top of an "official wage" (usually close to the minimum wage). Unregistered employment is actually not that widespread. Circene's proposal CANNOT address tax evasion through envelope wages because the government CANNOT know what the 'true', but unobserved, wage for a given worker is. Trying to link healthcare benefits to PIT paid is equivalent to legislating that the rich get more healthcare benefits than the poor - and that would be a political disaster. If one wants to address tax evasion, one needs to think about the factors that explain it. That's largely the burden of personal taxation, which aligns incentives of employers and employees. The largest component of this burden is the social tax. Addressing the issue of excessive social tax requires much more creativity, hard work, and also guts.

Second, lets start with this shocking finding that "only 43% of working age population" pays PIT. Roughly speaking, working age population = employed + unemployed + economically inactive. According to CSB 2009 Q2 data (15-64 age group), 61.4% were employed, 12.8% were unemployed but looking for a job, and 25.9% were economically inactive, i.e. not looking for a job. Now, lets think what would happen if Circene's proposal was to be implemented. The ones who wouldn't qualify for subsidized healthcare benefits (largely economically inactive) would say a few nice words about Jaunais Laiks, and declare themselves job-seekers. Those who were not registered unemployed would register. As a result, the officially measured number of unemployed would increase three times! Does this ruling coalition want to 'rule' over a period in which official unemployment tripled?

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Komentāri (11) secība: augoša / dilstoša

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reality 23.09.2009 21:07
Krabe - The U.S. system (..)health-related individual bankruptcies...''
TONIGHT,9pm ET at CNN Larry King Live: Michael Moore - He took on America's health care system!

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x 22.09.2009 18:23
Apart from the fact that there are very few jobs around to naively encourage everybody to partcipate in PIT revenue improvements , madame circene could try to remember at least what she learned about spread of infectuous diseases- as this initiative to help only the rich and medical professionals could prove insuficient - or they are going to wear some masks permanently?:)

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Krabe --> Dombrovsky 22.09.2009 17:05
The U.S. system is fraud through and through - I have lived briefly there, and I am following the developments there (health-related individual bankruptcies, also I have worked for insurance field, though in IT-related projects - so it interests me). That kind of system is simply unacceptable.


So, yeah, publicly funded system, extended to everyone is a must. However, I would like to explore in detail the notion of fairness in system where people who pay and people who do not pay get the same treatment.


Basically, what is motivation(incentive) for individual to pay any tax, if by not paying tax he can benefit anyway just the same.


Or, as our harsh reality has it: you get nothing back for you monies paid (Aizkraukle, Ludza, Bauska, ...).


No way out.

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kintu > ābolītis 22.09.2009 13:52
I really doubt that there are too many Latvians permanently working in the UK or Ireland who come back to Latvia for free health care when they can easily get the same health care in these respective countries.

The second point is that this scheme doesn't encourage to pay taxes; quite the contrary it only sends the message that the state is reluctant to provide free health care by all measures and the reinforces the perceived notion that there is no use to pay taxes as one will not be able to receive needed services. Why pay taxes then? It is cheaper to buy a health insurance: http://www.tvnet.lv/zinas/latvija/article.php?id=609136

It would be good to have a national health insurance as in the UK but I am afraid that Latvia is moving towards much criticized US model which is very hard for people earning just enough not to qualify for Medicare but not enough to get a good private insurance.

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v Dombrovsky --> Krabe 22.09.2009 13:45
Well, it's the question is fair. However, start with noting that your reasoning inevitably leads to a solution of not having any publicly financed healthcare at all. Then the individuals with high incomes (or the 'rich' - lets not argue about terms) would be able to afford more and better quality healthcare as compared with those who are "less productive". This is how it works in the United States. And it's absolutely fine if that's your stand, i.e. the kind of system you'd like.

Think, however, of why, according to most people (myself included) is there a publicly funded healthcare system. It IS inevitably about redistribution from the rich to the poor. The whole point of it is to provide affordable healthcare to every member of society no matter his or her income. Once you start talking about this being "not fair" that those don't pay taxes enjoy the same access as those who do, you run into insurmountable difficulties. For example, a person doesn't have a job - is that because he is really working under the table or is that because he CAN'T get one? Is someone with a minimum wage a tax evader (i.e. has a big 'envelope' payment) or he really can't make more money? All I am saying is that there is no way you, or me, or I. Circene, or anybody can know.

Again, you can take a political stand that "life is tough, everyone has problems, but each should take care of himself, and noone should be forced to pay for the others' (health) bills". If that's the like Jaunais Laiks want to take - fine! There is a gain of votes (e.g. yours) but also a loss of votes. Let them do their math on this.

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Krabe 22.09.2009 13:05
However, on the overall analysis I agree, attaching any meaning to PIT paid is meaningless, and would create more problems than it would solve.

Also it would be extremely bad to give somebody power to refuse healthcare on some technicality that "some field in DB says you have not paid" or similar "sorry, your name does not exist in by DB of taxes-paid". My approach would be that healthcare is provided to everybody, but that expenses might be recovered, if it shows up that you haven't paid your share.

And this could be solved by mandatory health tax or mandatory state health insurance, etc. Removing health tax portion from PIT also would protect the money from being squandered on some meaningless waste projects (such as Acoustic concert hall, and the like. "Sorry, we will close down hospital in Bauska, cuz our culture ministry wants to listen to some quality concerts here in Riga." Right.

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Krabe 22.09.2009 12:56
Vjačeslavs, I can't agree with the statement "Trying to link healthcare benefits to PIT paid is equivalent to legislating that the rich get more healthcare benefits than the poor - and that would be a political disaster." for following reasons:

1) Current status quo is that "rich" - who have paid a lot of PIT, get the same heathcare as person who paid nothing (by evading taxes, or by virtue of not working at all). How is that not a disaster?

2) It is inappropriate to label people who pay more tax from the higher wage "rich". I say - they are more productive, because for putting in same hours (40h per week, we are talking salaried employees here), they get higher wage, and pay more tax in terms of absolute lats. So, it's the more productive of your workforce, and maybe it makes sense to expedite healthcare for them? I mean, would it not be more productive to give higher priority to get productive member of workforce back into work, than somebody who is just loafing around on minimum wage, or pays no tax at all?

3) Might be hard sell politically, where "everybody is equal" rhetoric is appealing to the majority vote... but my sense dictates that if you have paid more, you should be entitled to receive more, even if by some small amount, but your bigger contribution should be acknowledged somehow. Otherwise - why bother? Why pay more, if the result is same shit?

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reality 22.09.2009 11:47
''Does this ruling coalition want...'' - zīmīgi, ka V.Dombrovska kunga jautājums (un viss teksts) par vadošo&valdošo vēlmēm ir angļu valodā. Droši vien vadošo&valdošo padomdevēji nepārvalda nevien latviešu valodu, bet arī slikti orientējās Latvijas nacionālās ekonomikas īpatnībās?

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Andrejs J. 22.09.2009 11:41
"only at a first glance" - completely agree!

In addition to the issues that you have mentioned, I have at least one more problem with this. There are still people who do not legitimately pay any PIT, but might be paying a lot in other taxes - CIT, VAT etc. Are those revenues into the budget less valuable? Are the PIT payers more important than the CIT/VAT payers (e.g. entrepreneurs)? And, by the way - guess which tax brings more revenue into the budget. Surprise - it's VAT, not PIT!

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Trauts 22.09.2009 10:59
Meaningless proposition to show off. I.Circene either don't know situation or is unable to think out of the box.

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ābolītis 22.09.2009 10:55
Exactly. Circene's proposal can not address tax evasion at all. Theoretically, Circene's proposal can have some effect on healthcare expenditures because persons who work in Ireland or somewhere else abroad would not receive healthcare benefits as they have not paid PIT for certain period and more likely have not been registered as job-seekers also. It has been very common practice at least for some of them to come back for a holiday and together do regular check-ups or solve some minor health problems. However, I have no idea on magnitude of such spending from the state budget.

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