Working Class Sees First Progressive Tax Reform in Decades

News

This important news from December slipped through the cracks while CISPES rushed to follow changes in the security cabinet. After twenty years of protesting tax reforms that only shifted the tax burden onto the poor and working class and off the wealthy and business elite, the demands of popular movement organizations were finally met at the end of last year. These legislative reforms - introduced by the Farabundo Martí National Liberation Front (FMLN) - was approved by the Legislative Assembly and signed into law by President Funes on December 16. The reforms are intended to collect an additional $150 million per year to fund the administration's increased investment in social programs and to correct the gross imbalance of the former tax structure, in which the poorest 10% of households paid 30% of their income in taxes while the wealthiest 10% of households paid only 11% of their income in taxes. The reforms eliminate income taxes for people making less than $503 a month, benefitting more than 262,000 people; they reduce the income tax of those with a monthly salary between $503 and $6,200 from 30% to 25%, benefitting an additional 250,000 people; they increase business income taxes to 30% from 25%, except for companies with revenue of less than $150,000, who will continue to pay 25%; and they create a new 5% tax on all dividends paid by businesses to stock holders. The National Association of Private Business (ANEP), the association that represents the country’s wealthiest businesses, staunchly opposed the reforms which were approved in the Legislative Assembly by all parties except the Nationalist Republican Alliance (ARENA). In fact, a major theme of ARENA´s legislative campaign is a promise to reverse the reforms despite the fact that television news and newspaper polls demonstrated broad approval of the reforms. While the reforms are modest, they are a first step towards moving El Salvador away from its current economic model in which the poor majority subsidizes the business elite and towards an “economic model based in solidarity, where those who earn more pay more,” according to Wilfredo Berríos, a union organizer and leader of the Salvadoran Union Front.

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