One “troublesome tax” specifically mentioned is a 3 percent
tax on something or other, in some way amounting to double taxation. Clearly,
the Vox publication has a proverbial axe to grind against raising taxes (You
know, it is bad for business, and scares away investors).
Another overview of the same proposed budget is found in the
Ukrainian Weekly, by Zenon Zawada (28 December), by far less judgmental, albeit
mentioning Viktor Penzenyk’s opportunity to say that this budget shifts
economic burden on society’s poorest by postponing inflation adjustments for
the minimum wage and the lowest pensions.
Before losing sight of the real problem with this budget,
think of Hr 475 billion revenue projection for 2015 — an unrealistic 30 percent
increase over 2014, and Hr 200 billion to be printed to “monetize” the expected shortfall.
The problem is the existing ideological habitual dominance of
the oligarchic hold on taxation philosophy in Ukraine’s “right-of center”
political culture. What in the West, including the United States, is the dream
of the extreme lunatic right wing has been reality in Ukraine since
independence: the flat income tax. Repeat: the flat income tax. Fifteen percent
(17 percent for incomes exceeding 10 times poverty level).
All Western countries of any significance have a graduated
income tax, meaning that higher income brackets have higher tax rates. During
World War II, the highest income bracket in the USA had a 94 percent tax rate (this
is not a misprint), and was 70 percent until 1982. This is what was meant by
financial sacrifice from the nation’s wealthy elite in time of war, including
the Cold War. In 2014, income over $228,800 is taxed at 39.6 percent for
singles (and over $457,600 for married couple filing jointly). Taxable income
below $18,150 (for married couple after non-taxable deductions) is taxed at 10
percent.
Ukraine’s 15 percent flat rate is, frankly, demeaning in the
context of sacrifices made by ordinary citizens, and It shows that something is
wrong with the mindset of the country’s politicians, who ultimately seem to be
tied to the coattails of oligarchy. Many of the recent arrivals into feathers perhaps
subconsciously swim into the same corner, while vociferously fracking at the
Yanukovych legacy.
Don’t these compatriots have a sense of awareness that the
country is at war for its existence as a nation against an unrelenting enemy?
What makes anyone in sound mind agonize over piddling 2 or 3 percent of this or that when the state
is facing financial collapse, from which no IMF can save it?
The politicians don’t need a “rethink”. There is no time to
analyze their mental habitat. They probably fully understand they need to raise
taxes. They need to overcome inhibitions and break up the accustomed bondage.
Along with this step an inner force against corruption may finally materialize,
seemingly out of nowhere. Jail time for tax fraud must become an introduction
to the life of honesty for many among Ukraine’s elite.
As of now, Prosecutor General Vitaly Yarema has failed to
get a major conviction, and has intimated that President Petro Poroshenko is not
making it easy.
Under public pressure and nudged from the West, Ukraine’s
government has now created a National Anti-Corruption Bureau — a “mini-FBI” consisting of 9 very
prominent members and still in search of a director. The first question is
which one of them will be answering direct calls from whistle-blowers? Ah, you
mean that’s not how it will work?
As I recall from recorded narratives about Elliot Ness and
his crew of The Untouchbles (the historic
“incorruptible” team that arrived
in Chicago in the 1920s to break up the Al Capone gang), the mission became
effective by vigorously pursuing sources of information from all levels.
Imagine how it would end up if it had limited itself to sitting in posh
accommodations and writing reports.
There is a lesson from the fact that Capone himself was successfully prosecuted,
convicted and jailed for tax fraud, and not by unravelling his dramatic crimes.
And so, Ukraine’s government must do a job on high level tax
cheats, with severe financial penalties. Income tax fraud must be on a priority
list, besides enactment of a realistic income tax itself, which should be the
prime venue to greatly reducing the budget gap.
There are no alternatives. Street demonstrations against the
proposed budget are on the rise. More of them will be demanding cuts in
spending on “war in the east”, as if disarmament could rescue Ukraine. Yes, if
the government gets tough on tax issues, accusations for rights violations will
spring up like flowers in the spring, justified or not, all the way to the
European court. But that is the name of the game which must be won, formalities
aside. At the end the IMF will love it,
and not before.
Boris Danik is a retired Ukrainian-American living in North Caldwell, New Jersey.
