Taxes-In Praise of Mexico

Let me note at the outset that taxes are distressingly high in Mexico.  There is a value-added tax (VAT) of 16% on most goods; food is excluded for example. The VAT rate is a bit less at the international borders. Mexico also imposes a hefty income tax on those from whom it can easily extract the tax; people who work in the formal sector such as government bureaucrats, employees in large corporations, and university professors, of course, among others. Tax avoidance is one reason the informal economy is so large in Mexico. Indirectly, the federal government taxes all Mexicans by taking a portion of the revenue from oil sales rather than redistributing those funds to the nominal owners of the oil, the citizens of Mexico. Naturally there are a multitude of other taxes, somewhat less important as sources for federal government revenue.

Instead, the subject of this blog is tax reporting. Around this time of year I start thinking about my income taxes in the U.S. I earn a tiny bit of interest and dividends in the U.S. but the bulk of my income is from my salary in Mexico. The US does not tax my salary, it is below the limit allowed for foreign earnings, but I do have to report the earnings to the IRS and the state of Montana where I am a legal resident. This reporting requirement always generates the same sort of angst I had prior to April 15 when I lived in the US. I would (almost) rather be waterboarded. Preparing my US tax forms still requires a ridiculous amount of  time gathering documents and filling out forms.

In addition, I have to file a tax report in Mexico. But, the process far less complicated. In Mexico I complete an online form that is submitted electronically to the Secretaria de Hacienda (the government ministry responsible for collecting taxes). Including my name, the form requires entering information in, perhaps, eight or ten spaces. Very few deductions are allowed thus greatly simplifying the process. After submission, I receive an e-mail confirming the receipt of my tax return. Refunds are deposited electronically in my bank account. If I owe taxes a trip to a local bank is required where I pay and the funds are deposited in the appropriate government account. In all, perhaps 2 hours work if I don't owe anything and an additional hour if I have to go to the bank.

Thank you Mexico for not making tax reporting the nightmare that it is in my own country.

I wish that members of the U.S. Congress and the Administration would quit quibbling about the extension of the 'Bush tax cuts' and start talking seriously about total reform of the system. The flat tax proposal developed by Robert Hall and Alvin Rabushka would be a good place to start. If the Tea Party proposed such a reform, I suspect it would gain millions of converts, me included.