Dear A.M. Costa Rica:
In your coverage of President Solis’ tax proposals (a value-added tax plus taxation of worldwide income) you mentioned that the value-added tax comes under criticism for the extra paperwork it entails and for the perceived negative impact upon production. What you failed to mention is the most damning consequence of a value-added tax, or any flat tax, upon people of limited financial means.
While any flat tax impacts equally (in percentage terms alone) upon everyone, such a tax leaves those with few resources with less to live on post-taxation.
Imagine a family with an annual income of (say) $12,000 who pays 10 percent of that in taxes. They would be left with $10,800 to meet their living expenses. Imagine a second family with an annual income of (say) $120,000 who pays the same tax rate. They would be left with $108,000 to meet their expenses.
Clearly, the poor suffer more under any flat tax system and that is not consistent with Costa Rica’s general public policy.