Taxing questions

Nothing of the sort.

Two years under the prior government led by the right-ish party Law & Justice (PiS) and every journalist in town could bark at the first scent that PiS might be making nationalist gestures to co-opt the base of one coalition partner or populist gestures to co-opt the base of the other. Every possible connection between government policy and the rhetoric of the firebrand nationalist priest/radio personality Father Rydzyk was appropriately fleshed out and exposed for what it was. A job well done.

Over the past week, I have listened to a handful of the nation’s wealthiest individuals or business lobby leaders go live on television to explain why they should not have to pay taxes at all. That is to say, that the government should move forward quickly on a dated promise from a previous election to lift all taxes on capital gains, dividend income and interest earnings, the so-called Belka taxes (named after former Finance Minister Marek Belka).

And over the past week I have seen an equal number of otherwise tenacious journalists nod their heads politely, hear out the arguments in favor and let the question of personal benefit go unasked. (With caveat that I tune in predominantly to financial news with its own natural bent).

Yes, a lifting of the capital gains tax could help attract capital for the development of Polish capital markets. Yes, dividend income is twice taxed money after a corporate income tax takes its share. Yes, equity investors deserve a break for the risk taken.

But nobody thought to the studio guests if they could afford to hire a bookkeeper to restructure their income from salary to dividend income or capital gains in order to avoid paying taxes altogether. (Presumably they already do so to keep their salaried income down – the 19% tax rate on dividend income and capital gains is still lower than the top two personal income tax brackets at 30 and 40%). No one bothered to mention the example of yet another wealthy investor, Warren Buffet, who recently discovered that he has the lowest effective tax rate of anyone in his office.

The shortcoming has impoverished the quality of the tax debate, reducing the matter to a plebiscite on the value of keeping age-old campaign promises (even those from earlier elections that the party DID NOT WIN), and on the value of further development for the Warsaw Stock Exchange. It can do little to raise such questions as: what kind of taxes might be equitable and still encourage risk-taking equity stances and long-term capital accumulation?

A debate so constructed by one interest group is not a debate which is ever likely to propose suspension of capital gains and dividend taxes for re-invested moneys (thus allowing money to support market development ‘tax-free’), to name just one possible solution. What support could such a proposal gain amongst a constituency that hopes to use tax-free capital gains and dividend income to fund its own personal income for personal spending?

The current governing party, the Civic Platform (PO), has always been the party of big business. All fine and dandy. Unions have their party, public sector employees have their party, farmers have a couple of parties, the old-time intelligentsia has its party, the old-time PARTY has its party. All praise and glory to the blessings of representative democracy (with caveat for the unfortunate demise in the early years of Polish post-communist democracy of a party singularly dedicated to beer drinkers. To this day, a seemingly unclaimed constituency).

And even the current government knows it wasn’t elected only by that single special interest group. The Finance Minister is on record as opposing the lifting of the Belka taxes and recent reports suggest he has convinced the PM. Finance Minister Jan Rostowski has put it pretty clear: he wants to head towards a universal flat rate tax and allowing the wealthiest to pay no taxes at all is not a step towards a flat rate.

Making it all the more difficult to understand how I am left with the impression that the Polish media is throwing softballs at a PO constituency with an obvious interest in the matter and where even the PO government is taking a harder line. The running assumption is that the media largely support PO (and we would need to add the assumption that the media aren’t capable of restructuring their income to dividends or capital gains), but they may have yet to show that support and eye-winking have little in common.