Lowering tax rates boosts the economy

Emre KARTALOĞLU / Chairman of TÜRMOB The damage caused by high inflation affects fixed income earners and small businesses the most. Supporting these segments with tax reductions will make a significant contribution to reducing the extent of the damage experienced. Using the contribution of the increase in inflation to the budget to heal the wounds of those who suffer from inflation can be implemented as a policy of promoting production as well as being a policy of social assistance and solidarity. Tax reductions will contribute economically to a wide range of social segments. Taxes are collected to cover public expenditure. The amount of tax that is planned to be collected in the relevant year is also indicated in the Budget Laws. Thus, the society is informed about how much tax burden they will cover in the current year and taxes are collected with the approval of the representatives of the people. This is how this system works in more or less all western democracies. In addition, in extraordinary situations, in case of a devastating natural disaster, war or similar, the tax burden may be increased. An increase in tax rates is socially accepted in extraordinary circumstances. So, do the moments of economic crisis fall into these extraordinary situations? The state is expected to act with all kinds of foresight and to dominate the international conjuncture and domestic functioning. For this reason, as long as it does not reach a sudden major size, the state should anticipate the upcoming economic problems, take precautions and take action. All the while, raising tax rates has the opposite effect of what is expected. However, what needs to be done is to overcome the economic crises without making the society feel the weight of the tax burden. The current crisis can be resolved with an increase in production. Since the increase in production depends on the reduction of employment and input costs, reducing taxes, which is the most important of the input costs, should be the first step. Afterwards, consumption taxes should be reduced to a minimum so that consumption can keep up with production. In this way, when the production, employment and consumption balance is established, the process that leads to stagflation, which is more dangerous than inflation, will be prevented. Another benefit of the low tax rates in terms of all taxes is that it will enable global players, namely foreign capital, to see our country as an area of ​​attraction. Another factor of our country’s ability to attract foreign capital, whose employment costs are low compared to European countries, is low tax rates. Low tax rates will increase the deterrence of tax crimes and penalties. Losing the attractiveness of the informal economy will ensure that the economy is registered and tax revenues increase. Instead of paying a low tax, no wise entity would prefer to deviate from illegal ways to avoid paying this tax, so as tax rates decrease, tax revenue will actually increase. Tax Policy Reforms 2022, published by the OECD, showed that tax reforms have become an important policy tool in all OECD members and other countries. It finds that tax reforms are among the key policy tools that countries use to stimulate growth and enable the transition from pandemic to economic recovery, with particular focus on labor tax cuts and corporate tax incentives. Reducing tax rates will create a center of attraction for direct investments by making a positive contribution to overcoming economic difficulties, encouraging production and exports.