Mexico's Tax Overhaul Has Middle Class Crying Foul

Mexico's president has unveiled a major shakeup of the country's tax system. His administration says it's aimed at capturing more of Mexico's paltry tax collection. Critics say it's unfairly targeting the middle class. Among the items slated for taxing: dog food and private school tuition.

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Mexico's president has announced a major overhaul of the country's tax system. This proposal aims to raise the nation's rate of tax collection, which is one of the lowest in the hemisphere, while also lowering Mexico's dependence on oil revenues. But critics say the new plan places an unfair burden on the middle class.

NPR's Carrie Kahn reports.

CARRIE KAHN, BYLINE: Erica Tale and Eduardo Paz are out on a walk with their two dogs in Mexico City's trendy Condesa neighborhood.

EDUARDO PAZ: Lola and Maya, son Beagles los dos.

KAHN: They're both Beagles. Lola is nine, Maya is eight. Paz is a realtor. He jokes how the family hovers around the middle class.

PAZ: (Through translator) We have a mortgage. We have school tuition fees. Yes, we're getting hit hard. And we have the pets. We'll have to go buy their food on the black market.

KAHN: The tax rate is expected to rise from 30 to 32 percent for a family making more than 500,000 pesos a year, that's about $38,000.

Tale, a psychologist, says it feels like the government is punishing them for trying to improve their standard of living.

ERICA TALE: (Through Translator) They're looking at these things like they are luxury items. In reality we're trying to own a home, give our children a decent education, those are not luxuries, they're necessities.

KAHN: In announcing the tax reform, President Enrique Pena Nieto surprised many and quieted the left by leaving off a value added tax on food and medicine. He did propose a soda tax, in hopes of combating Mexico's obesity epidemic. And the country's first carbon tax on industries using fossil fuels, even though the government continues to subsidize gasoline.

Gustavo Flores Macias of Cornell University says the reforms are a move in the right direction. Mexico needs to collect more taxes, which account for only 10 percent of the budget. But he says the reforms don't go far enough to fairly expand the tax base.

GUSTAVO FLORES MACIAS: Given how concentrated wealth is in Mexico it is not a fiscal reform that affects, in a meaningful way, the wealthiest sectors of society. It really affects the most, the middle classes.

KAHN: Besides a capital gains tax, the rich - which includes the world's second wealthiest man, Carlos Slim, and nine other billionaires - got off easy.

And it's unclear whether one of the main objectives of the tax reform to decrease the tax burden on the state run oil monopoly Pemex will be achieved. Currently, Pemex's oil revenues contribute more than 30 percent of the national budget.

Juan Pardinas of the non-partisan Competitive Institute of Mexico says the government's own figures don't show that trend slowing anytime soon.

JUAN PARDINAS: (Foreign language spoken)

KAHN: Pardinas says the tax reform is only half the story. The big test of whether it works or not will be once the government starts spending the new funds and whether it improves Mexico's economic output and productivity.

JAMES THURBER: For now pressure is mounting by different groups to stop some of the taxes. Mexico's largest parent organization is holding a press conference today to drum up opposition against the school tuition tax. Tomorrow dog and cat owners upset about the pet food tax are organizing a TweetStorm and petition drive.

KAHN: Lilia Nunez Quintara, who owns a dry cleaning store in the Condesa neighborhood, says her middle class customers are going to be hit hard by the new taxes.

LILIA NUNEZ QUINTARA: (Foreign language spoken)

KAHN: But she says the government has to get the funds from somewhere. With a wry smile she adds, you didn't think they would come out of the pockets of the lawmakers, their friends or the President did you?

Carrie Kahn, NPR News.

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