Central America needs its fiscal house in order

There always seems to be some new, relatively small-scale, project launched to help Central American countries improve their rates of tax collection. Already starting with low rates, millions are then lost through corruption, tax evasion, and weak efforts at tax collection. The result is that the region's institutions and infrastructure are bankrupt. The absence of strong institutions and adequate infrastructure subsequently discourages private investment.An editorial at Bloomberg View says something needs to change.

Broadening the income-tax base and cracking down on evasion could raise substantially more revenue for education and other vital public services. Greater transparency would boost taxpayers' confidence and their willingness to pay into the system. Higher cash transfers, more precisely targeted at the poorest, would get more bang for the anti-poverty buck.

Right now, El Salvador, Guatemala and Honduras are in effect outsourcing the uplift of their poorest by exporting undocumented immigrants. In 2015, each took in remittances equal to more than 10 percent of GDP -- a strategy that may be crimped by the U.S. immigration crackdown. The willingness of the U.S. and other aid donors to continue helping countries that refuse to help themselves is not limitless. Central America's governments need to get their fiscal houses in order.

The US and international community have often complained that the governments of Central America refuse to make the difficult tax decisions to adequately fund the responsibilities of each state. However, they have been reluctant to punish those countries for the lack of compliance because the result would be greater hardship and suffering, and possibly increased migration of the region's people to the US. Most people end up worse off. The new US administration does not appear against pursuing policies that make most people worse off. However, with its eyes now set on reducing the tax burden paid by the wealthiest citizens through tax reform in the US, perhaps the Trump administration will find it hypocritical to push for increased taxes in Central America.