World

ANTHONY BROOKS, host:

This is DAY TO DAY from NPR News. I'm Anthony Brooks.

MADELEINE BRAND, host:

And I'm Madeleine Brand.

In Mexico, we always hear stories about drug violence and mass migration. The most pressing problem, though, that Mexico faces is taxes. Nobody is paying them.

BROOKS: That's what Mexico's President Felipe Calderon is telling his country's divided Congress. He just presented his first major economic reform package since taking office in December.

Michael O'Boyle reports from Mexico City.

MICHAEL O'BOYLE: European governments collect around 36 percent of gross domestic product in taxes. The U.S. takes nearly 27 percent. And Latin American countries, on average, draw in 15. But Mexico - the second largest economy in Latin America - only scores a skimpy 11 percent. Political commentator Sergio Sarmiento.

Mr. SERGIO SARMIENTO (Political Commentator, Mexico): We have a government that doesn't have the resources to actually fulfill its duties, to fulfill its duties to preserve law and order, to fulfill its duties to combat property, to fulfill its duties by building infrastructure and allow the country to be more competitive.

(Soundbite of crowd chatter, music)

O'BOYLE: In a busy street market, vendors sell everything from perfume to pirate DVDs. Nearly half of the working-age population labor in the country's enormous off-books informal economy. They don't pay taxes, and they have limited access to government services. But Patricia Cicero(ph) has been selling clothes from a stand on the street for 15 years.

Ms. PATRICIA CICERO (Vendor): (Through translator) The jobs here pay miserable wages. If you work at a factory, you make just enough to pay for the bus and eat until you're half-full. Here in the street, we can make a little more. If they want us to pay taxes, then those taxes should work for us, not just make the politicians richer.

O'BOYLE: At the other extreme, wealthy individuals and corporations largely avoid paying their taxes through loopholes. That's left a burden on Mexico's small middle-class of salaried workers, and it's created a lot of resentment.

(Soundbite of crowd chatter)

O'BOYLE: Twenty-eight-year-old bank employee Maria Avila(ph) sits in a Starbucks in the heart of Mexico City's financial district.

Ms. MARIA AVILA (Bank Employee): I don't trust the government with the money we pay for our taxes, because we don't see it transferred to services, to security, with the police - you cannot trust the police, either.

O'BOYLE: Mexico has needed to reform its tax system for decades. But rather than incurring the political costs, succeeding administrations chose to run dry in national oil monopoly, PEMEX. Taxes on PEMEX fund around 40 percent of the federal budget. That has left the company without enough money to invest in exploration and production. Current oil reserves are plummeting. If trends aren't reversed, Mexico - now, one of the United States top sources of oil -could turn into an importer of crude within a decade.

On Monday, President Felipe Calderon traveled to one of the nation's most miserably poor towns in the state of Veracruz. There, he spoke about his plans to help Mexico's poorest citizens, and how that would require tax reform.

President FELIPE CALDERON (Mexico): (Through translator) We cannot substantially attack misery if we don't significantly increase public spending to fight poverty and inequality. That is why we all have to make an enormous effort, especially those who are most able, in favor of those who have the least.

O'BOYLE: Calderon's administration is mostly going after those most able. His plan focuses on introducing a flat tax that will cut down on evasion by businesses. Political analyst Sarmiento says Calderon will likely win support from the divided Congress. But he isn't sure the reform goes far enough.

Mr. SARMIENTO: It's not only just having more money going to the government. That doesn't help you at all if you have a government that is corrupt or that is inefficient. And there are good indications that our government is both.

O'BOYLE: Sarmiento says Mexico needs to approve a tax reform plan that promotes efficiency and encourages investment. If its politicians can do that, they may be able to jumpstart Mexico's underperforming economy.

For NPR News, I'm Michael O'Boyle in Mexico City.

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