Bizarre Moments in Taxation

July 8, 2019 by Dan Mitchell @ International Liberty
 

Every so often, I share very weird stories about government regulations, from both America and around the world. And when I say weird, I’m not exaggerating.

But we also have some strange examples of tax loopholes.

I’m not talking about corporate jets, which should be characterized as a business expense.

Instead, I’m referring to bizarre examples of income that is arbitrarily exempt from tax.

The weirdest example in the United States is from Nevada (probably because politicians have a conflict of interest).

Today I want to write about a new tax loophole in Poland.

Polish lawmakers have approved a measure that would exonerate most workers under the age of 26 from income taxes… The bill would exonerate workers under the age of 26 from Poland’s 18 percent personal income tax for those whose gross earnings don’t surpass 85,500 zlotys (20,000 euros, $22,500) per year. That level is higher than Poland’s average income… Some two million people could benefit from the measure.

So what’s motivating this example of age-based tax discrimination?

Poland has long been haemorrhaging skilled workers to other EU states where they can find better paying jobs, posing both a long-term demographic risk and short-term problem finding enough labourers to continue the country’s streak of economic growth since the fall of communism in 1989.

I certainly agree that Poland faces a demographic challenge (along with other nations in Eastern Europe), both because of emigration and low birth rates.

And I also agree that Poland’s economy has been relatively successful since escaping the evil of communism.

But I’m not very confident that this policy is the right recipe for continued prosperity.

• First, I don’t like discrimination in the tax code, whether based on the source of income, the use of income, the level of income, or – in this case – the age at which income is earned.
• Second, this policy doesn’t affect social insurance taxes and value-added taxes, which are actually the biggest burden for ordinary workers in many Eastern European nations.
• Third, unless Poland’s government imposes some spending discipline, a tax preference for young people may lead to higher taxes on other groups, thus offsetting any economic benefit.

To be sure, I’m glad Poland is addressing the issue by lowering taxes rather than by creating new programs and subsidies, as we’ve seen in some other European nations.

I’m simply not expecting big results.

P.S. You can click here to peruse other oddball examples of international tax policy.