El economista

As common people we may think that a tax cut by the government is a really good idea because you will find yourself with some extra money to spend or to do whatever you may like but as a matter of fact it is a risky decision for the economy as a whole.

The supply side economists tell to us that a cut in the taxes is good because it stimulate the economic activity people spend more, the enterprises can re invest their new extra capital gains and in general it will attract foreign investment to bring new capital inflows to the economy that will end with a greater economical growth.

But experience has teach us that the result can be totally opposite and can endanger the whole business cycle and it is because of some very specific factors, the first is that the taxes are the source of the government revenue, so a cut tax will tend to drop the revenue and therefore the budget that the government can handle to their public policy, although the supply side economist argue that the revenue will increase since more enterprises will enter the economy in the reality it has not been as good and has ended in general drops in the growth rate and in the inefficiency of the government to achieve the goals that originally want.

Now we can easy analyze this problem with the tax cuts made by president Bush in the United States, since the administration cut the taxes the economy has not improve since the taxes just benefit the top percentages of the income in other words the big companies that rule the market, but this companies did not improve the salary of the workers even with the increase in productivity, therefore the administration fail to solve the real issues of the economy like the real slowing of the economy and the increase in the inflation rate.

Now we can compare this with the new policy that the Mexican government is about to take, the new fiscal reform proposal is very likely to the one taken by the Bush administration, but with worse scenarios, since Mexico is a country in which a third of the revenue is from oil exports another third from migrant remittances and just the other third from the taxes, if the country drop the taxes and also change the oil revenue the country will face and not easy to handle budget that will compromise the public policy and as a country in development that is too risky.

Is not financial healthy and since the right wing government has always take as a first priority the enterprises instead the social conflict it will end exactly that the one in the United States, increasing the gaining for the market giants and reduce the effectiveness of the programs to the lower income people, now the reform did not even modify the taxes to the consume so its not yet a clear way from where the resources for the budget will come, and that is the greater risk, a reduction of the government spending as an effect of the lower revenues will slow the economy, and if the government try to fix it in the short run will only face the way of the debt and that is not wise but foolish.