Tax Resistance and Tax Cooperation in the 1930s

In the nineteenth century, Argentina, like most Latin American nations, built its Treasury on the bases of the collections coming from duties on international trade. With a meager development of domestic taxes, Latin American states and citizens did not clash over issues of taxation and representation, and therefore tax revolts, which used to be frequent during the colonial period, vanished.^{Footnote 5} It can be argued that both fiscal systems and citizenship remained underdeveloped during the nineteenth century.^{Footnote 6} Argentina was a conspicuous example of Latin American taxation regimes in the period: customs duties reached to 75 percent of total national public revenues.^{Footnote 7}

Since the late nineteenth century, Argentine politicians and intellectuals began to think about transforming this system that was so extremely dependent on the international trade. The discussion gained momentum in the aftermath of World War I because of the collapse of international trade and the increased fiscal deficit. Financial problems coincided with the culmination of a process of democratization, which led the opposition party, Unión Cívica Radical (UCR), and its leader, Hipólito Yrigoyen, to the presidency of the Republic in 1916. Financial needs and a greater political participation seemed to establish the basis for a progressive-oriented tax reform. However, Argentine exports recovered in the 1920s and the necessity for reform became less pressing.^{Footnote 8}

The world depression in the 1930s meant a new opportunity for tax reform in Argentina. The fall in exports and therefore in imports played havoc with the Argentine fiscal balance.^{Footnote 9} For the first time, the national government was able to carry out a profound tax reform. Among the main novelties, the government enacted the income tax and a national sales tax (impuesto a las transacciones), a cascading tax affecting the sale of the same product in different phases. Yrigoyen’s democratic government had been toppled in 1930 by a coalition of military and civilians, the first coup d’état of the century. Hence, the income tax bill was drafted in 1931 by the authoritarian administration of General José Félix Uriburu. In 1932, once parliamentary life had returned, the Argentine congress passed the law. Nonetheless, many in the opposition noticed that the income tax passed by Congress was a legacy of the dictatorship. Moreover, the governments of the 1930s, even if formally constitutionally elected, resorted to electoral rigging in order to keep the UCR out of the political game. The deficit of legitimacy that affected these rulers tainted their tax policies as well.

The question of the illegitimacy or even the illegality of the new taxes was apparent to many. The Buenos Aires press and the Socialist party criticized the introduction of taxes approved by a “provisional,” that is, nonconstitutional, regime.^{Footnote 10} For one of the leaders of the Independent Socialist Party, “the decree is illegal, like all decrees on reforms, reduction, increase or creation of new taxes by the Provisional Government.”^{Footnote 11} Yet, at least in the case of the income tax, actual acts of resistance were scarce.^{Footnote 12}

The situation was complex. For instance, the Independent Socialist Party, although it challenged the legitimacy of the new taxes because of their origins in the “provisional” government, had supported the 1930s coup and it would support the new conservative government. Being elected in suspicious elections, the conservative rulers of the early 1930s had to distinguish themselves from the authoritarian government of 1931 and at the same time carry out some of the policies, such as the tax reform, begun under Uriburu. The critics did notice this dilemma and used it against the government. Thus, the Buenos Aires newspaper La Prensa rejected any intervention of the state in the economy, including new taxes. In March 1932, when the national government was trying to enact the tax laws, La Prensa denounced the “threatening attitude adopted by the Minister” and affirmed that “the question arises whether the country is financially still under the ‘de facto’ regimen, in view of the disregard paid to the whole system of the constitution.”^{Footnote 13}

Since the question of illegitimacy was a thorny one, the national government tried to separate in its discourse origin from practice of power. Thus, the conservative coalition leaded by General Justo launched a campaign aimed to portrait Uriburu’s government in dark hues. In February 1932, the Socialist newspaper La Vanguardia published an article titled “Tortures and taxes,” in which Justo’s administration was accused of taking political advantage of the denouncing of torture during the dictatorship and distracting the attention of the public from important matters such as taxation: “The brand-new government of General Justo has not said yet a single word of repudiation against the thirty absolutely illegal taxes that it has inherited from his companion of adventures the General Uriburu.”^{Footnote 14}

By contrast, taxes offered important opportunities for the national rulers to legitimize their presence in power. The government did not lose the opportunity to present itself as the champion of progressive reform as a substitute for its weak democratic credentials. Therefore, although the main goal of the tax reform was to balance the Argentine Treasury, the representatives of the government emphasized the social meaning of the tax reform. Thus, a conservative politician from Buenos Aires asserted: “The Honorable Chamber discusses and will pass with the votes of the representatives of parties accused in this Chamber of being reactionaries, one of the greatest social conquest . . . the income tax, a perfect fruit of the Revolution of September [the 1930’s coup].”^{Footnote 15} As the 1930s wore on and the government was unable to solve the problem of its legitimacy, the social meaning of the income tax acquired even greater salience.

The impuesto a las transacciones aroused greater controversy than the income tax. In May 1932, the almaceneros (merchants) of the province of Buenos Aires, with the support of hotel and restaurant owners, carried out a successful lock out against the tax.^{Footnote 16} In September, a merchants’ committee called to civil disobedience against the tax on transaction and the income tax, which they labeled as unconstitutional taxes.^{Footnote 17} By this, they were underlining the fact that according to the Argentine constitution, taxes had to be passed by Congress and the tax on transaction and the income tax had been enacted by the dictatorship. Therefore, merchants did not consider the passing of the tax laws by Congress after the end of the provisional government as enough to clean the original stain. The shadow of illegality loomed large over the new elected government. According to the merchants, the new elected government should not validate the unpopular measures taken by the former administration. Yet constitutional and legal issues were not the only concern of the protestors. The announcement of an increase in the rates of the latter sparked further protests.^{Footnote 18} Many traders and petty merchants decided not to pay the tax, keeping the movement alive.^{Footnote 19} A “Popular Commission for the Repeal of the Tax on Transactions and the Income Tax on Commerce” was formed, claiming to represent around 150,000 persons, from commerce, industry, and production, the so-called “trabajo nacional,” although most of its members were traders’ associations.^{Footnote 20}

The tax on transacciones was unfair because it taxed the same good as many times as the good was sold (i.e., a cascading tax). Moreover, the tax affected the result of sales and not real profits. Last but not least, the tax on transactions allowed “public officers to revise the taxpayer’s account books, his notes and personal documents,” thus violating fundamental rights to privacy.^{Footnote 21}

In October 1932, the National Congress of Commercial Institutions called for a new lockout of traders and small workshops and to resist payment of the tax for thirty days after the close of business.^{Footnote 22} The conflict between the government and commercial associations lasted for more than a year and ended with the victory of the associations. Finally, in 1934, the tax on transactions was replaced by a new sales tax charged only once on exports and on some industrial productions. Commerce was exempted and the Bureau of the Income Tax conceded a sort of fiscal amnesty to merchants as far as the impuesto a las transacciones was concerned.^{Footnote 23}

During the conflict, merchants moved from constitutional grievances to economic ones, which would allow separate debates on the income tax and the sales tax. Although both taxes were “illegal,” the income tax was economically more acceptable to the merchants: “The resistance to the sales’ tax . . . is believed to be mainly attributable to the fact that while income tax is only charged on profits the tax on transaction affects all operations, irrespective of whether they are profitable or not.”^{Footnote 24} Furthermore, regarding the income tax, merchants did not mention that their profits were more difficult to monitor than incomes derived from salaries or even corporate profits.

The successful revolt against the impuesto a las transacciones was the last episode of open resistance to taxation in the country until the end of the twentieth century. To some extent, the revolt was due to the difficulties in avoiding payment and the shock caused by the new intrusiveness of the government’s monitoring activities. Nonetheless, in the following decades, the resistance against taxation expressed itself through noncompliance rather than through open rebellion not only because of the specific features of every tax device but also because of the evolution of the relationship between the state and civil society and among social actors as well.

Unlike what happened in the case of the tax on transactions, the income tax was finally accepted. The new tax contribution to the Treasury gradually rose, becoming the single largest source of tax revenue in 1942. Whereas in 1932 the income tax represented a 0.62 percent of the GDP, in 1943 it reached 2.56 percent.^{Footnote 25} This success was mainly due to economic elites’ cooperation. The Argentine upper classes realized that the income tax was preferable to alternative forms of taxation, among other reasons, because of its low rates. Furthermore, both the provisional government under Uriburu and the new elected authorities after 1931 showed a remarkable commitment to reduce public expenditure. Overall, Argentine businessmen found a sympathetic interlocutor in the conservative coalition that ruled the nation during the 1930s. Thus, entrepreneurs welcomed the shift toward greater economic interventionism stirred by world depression, understanding that those policies were necessary and that their interests were being taken into consideration.^{Footnote 26} Business representatives participated in several committees dealing with economic matters (although their role in tax policy was marginal), which reinforced the convergence between economic elites and the national government.^{Footnote 27} Favorable state policies served as what Margaret Levi called “side payments,” that is, selective incentives addressed to the affluent groups in society in order to cajole them for their cooperation in the working of the tax system.^{Footnote 28}

In 1942, the cooperation of economic elites with the Argentine tax scheme began to unravel. The fiscal deficit aroused by the impact of World War II led the national government to search for new sources of revenue to compensate for the dramatic fall in customs revenues.^{Footnote 29} The proposed measures were an increase in the rates of the income tax, the enactment of a tax on excess profits (profits derived from the circumstances of war), and a mobile tax on exports. The measures stirred the reaction of business associations and individual entrepreneurs as well.^{Footnote 30} Business associations launched a campaign aimed to rebut the new taxes, which meant this was the first organized opposition to national tax policies since 1932.

Business complaints were numerous. They criticized the excessive increase in rates and also challenged the idea that their profits should be considered equivalent to those coming from “capital” (investments in public bonds, bank deposits, etc.), since they made a substantial contribution to national welfare.^{Footnote 31} Business associations understood that the new excess profits tax had a political and not an economic goal: “The new excess profits tax seems to propose that the state should pursue a goal of social and distributive justice. . . . In fact, instead of arriving at that better social order, it creates a disorder because it provokes envy and promotes conflict among social classes.”^{Footnote 32} The government also justified the new fiscal device on the grounds of the social aims it envisioned: “The project also pursues—and this is one of its main concerns—a more equitable distribution of the fiscal burden.”^{Footnote 33} However, the main problem for the entrepreneurs extended beyond this social objective: “What is serious and certain is that this accumulation of laws is giving the ruling of the country to a new class, truly state within the state, completely divorced from its problems. . . . The country runs the risk that its ruling forces become subalterns (de una subalternización de sus fuerzas rectoras).”^{Footnote 34} The new class, “truly state within the state,” was the bureaucratic organization developed by the conservative governments of the 1930s. In fact, the success of the income tax during that decade rested on the efficiency of the Treasury’s bureaucratic capacities. State autonomy became increasingly worrisome for businessmen.^{Footnote 35}

But beyond bureaucratic autonomy and fiscal needs, why did a government so committed to business interests pursue a more socially progressive tax policy? To some extent, legitimacy issues were still a factor. The government was aware of the lack of legitimacy derived from its increasingly blatant manipulation of the electoral process and progressive fiscal measures helped to offset this deficit.^{Footnote 36} Further, technocratic success was also an alternative source of legitimacy. The Argentine economy had recovered since 1934 and Argentina was an exception in Latin America by avoiding default.^{Footnote 37} Bureaucrats deserved credit for this, and they probably were more prepared to deal with economic troubles than business associations or other private agents. And last but not least, national and international atmospheres were becoming more favorable to distributive policies. The national government could not deal with the working class only through repression and the idea of pursuing social justice was gaining public support.^{Footnote 38}

Business representatives demanded its involvement in the design of the new tax policy through the creation of an advisory council. Yet a new coup d’état in 1943 ended with a period of conservative rule and opened up a moment of uncertainty about what the new tax policies might be.^{Footnote 39} The new military authorities decided to carry out the reforms proposed by the previous administration, but they showed a cautious attitude toward the associations of economic elites. Heeding their petitions, only a month after the coup, in July 1943, the national government formed an honorary advisory commission.

The most powerful business associations, such as the Argentine Rural Society (SRA), the Argentine Industrial Union (UIA), and the stock market, along with other minor institutions, formed the commission. Revealingly enough, labor representatives were excluded.^{Footnote 40} The commission strictly followed the agenda of the SRA and the UIA, postponing a thorough reform, proposing piecemeal adjustments to the income tax, and accepting economic elites’ suggestions about the design of the excess profits tax.^{Footnote 41} The national government, in December 1943, enacted a tax law that stuck to the proposals advanced by business.^{Footnote 42} The final rupture between the economic elites and the government was averted. Nonetheless, the political crisis, accelerated since 1943, was providing fertile soil for uncertainty and mutual distrust.

The tax reform of the 1930s faced a major challenge: the merchant revolt against the tax on transactions. This was a unique—and ultimately successful—episode of tax rebellion in twentieth-century Argentina. The introduction of the income tax and its adequacy during the 1930s was finally accepted as a result of the modernization of the state bureaucracy and the cooperation of the economic elites with the conservative governments of the decade. By contrast, lower-income groups were mostly exempted from paying the income tax. The favorable economic policies implemented by the 1930s governments were a more important element in cajoling the entrepreneurs. The new governments were, from the point of view of the businessmen, worthy of trust and therefore business was willing to pay taxes. The rich had good reason to be happy with the national rulers. According to Facundo Alvaredo’s study, in 1933 the richest 1 percent in Argentina garnered 17 percent of the national in income; in 1943, that figure was 25 percent.^{Footnote 43} This made income tax acceptable for the upper classes, but it prevented a more effective development of taxation as an instrument of income distribution. The nondemocratic character of the governments of the decade to some extent accounts for this outcome. The rulers of the 1930s were clearly perceived as illegitimate and their economic policies were perceived as favorable to the economic elites. We can only speculate on the consequences of these features on the development of a tax culture within Argentine society and on what would have happened had Argentina implemented progressive taxation under democratic rule. But the fact is that the shadow of illegitimacy accompanies the inception of progressive taxes in the country.

The Years of Perón

In 1946, Juan Domingo Perón, one of the leading figures of the military regime established in 1943, won the first democratic presidential elections since 1930. Perón’s success was based on an alliance with trade unions and workers through a policy of concessions. The state supported workers and unions in their conflicts with employers.^{Footnote 44} In addition, the state’s social protection addressed to labor became a reality and wages became a greater part in the distribution of the national wealth.^{Footnote 45}

Yet taxes played a minor role in Peronist distributive policies, which were largely based on the maintenance of full employment, high wages, and rising social expenditures. Those expenditures were financed through social security taxes, foreign trade profits, debt, or inflation, but not necessarily through progressive taxes. Peronism understood that taxation should be an instrument of social harmony and not a source of conflict.

This does not mean that Perón’s government did not favor a progressive income tax. Higher effective rates reached 26 percent in 1948; 32 percent in 1949, and in 1955, at the end of Peronist rule, they climbed to almost 40 percent.^{Footnote 46} The corporate income tax was also increased.^{Footnote 47} Most important, Perón’s government enacted a capital gains tax (impuesto a las ganancias eventuales) in 1946.

Nonetheless, Peronist taxation also had regressive features. In 1950, the government authorized the issue of nonbearable shares, and it suppressed the requirement of including dividends in individual tax returns. The reform conspicuously favored shareholders. The contradiction with Peronist social justice rhetoric was so apparent that it received wide criticism.^{Footnote 48} Furthermore, the administration dramatically hiked the sales tax from 1.25 to 8 percent, stirring a considerable amount of controversy. As compensation, in 1951, the DGI drafted a plan to earmark the revenues coming from the sales tax and devoting them to education and building social security funds.^{Footnote 49} Again, Peronist rulers preferred to distribute through expenditure than through taxation.

Ideological reasons played a part here. Peronist leadership and the rank and file believed that an affluent industrial society would distribute wealth for everyone without harming any other interests. In 1948, the president of the so-called national economic council, and one of the main economic policymakers within the government, Miguel Miranda, rejected the possibility of high taxes for wealthy industrials with a clear reference to the creation of a fully-fledged industrial society: “If the capitalist, the manufacturer, earns a lot of money and makes factories, what damage does he do to the country? . . . This capital must not be punished. . . . On the other hand, parasite capital must be punished in order to force it to be active.”^{Footnote 50} In addition: “If more factories are set up, there is no need to expend money abroad. This is why we must industrialize the country, and once we are industrialized we’ll do as in North America.”^{Footnote 51}

Although some Peronist politicians demanded higher taxes for the upper classes, they lost their battle within Peronism. Peronist tax ideas were also shared by workers. For trade-unionists, tax deductions and allowances for their constituencies were the main issue at stake. Tax deductions for wage earners were repeatedly raised during Perón’s administration. In 1955, fourth-category (wage earners) taxpayers’ maximum allowance in the income tax was raised from 12,600 to 15,000 pesos annually, whereas the average annual wage in Argentina was 13,025 pesos.^{Footnote 52} Data available for 1956, one year after Perón’s fall, offer an illuminating picture. That year, wage earners declared a total taxable income of more than three and a half million pesos. Taxable income for those earning less than 10,000 pesos (probably but not necessarily employee) reached almost 3 million pesos, which is over 80 percent of total labor income. Out of that, more than two and a quarter million pesos were exempted from payment because of family allowances and nontaxable deductions.^{Footnote 53} Thus the burden of income tax on labor was slight.

Progressive taxation was a marginal issue for Argentine workers.^{Footnote 54} Since exemptions and allowances in the income tax were favorable to fourth-category taxpayers, they might consider the system progressive. Yet critics of the Peronist tax regime argued that the inroads of indirect taxation and the increased share of social security taxes were making Argentine taxation regressive. These features could have been hidden through strong Peronist propaganda, which emphasized the redistributive achievements of the regime.^{Footnote 55} Nonetheless, to believe that Argentine workers were misinterpreting Peronist tax policies would be an oversimplification. Strategic and ideological reasons account for workers’ disregard for progressive taxation.

A good example is provided by social security taxes. These payroll taxes, based upon the contributions of both employers and employees, became almost universal under Perón’s administration. Their contribution to the Treasury in 1955 doubled the income tax revenues.^{Footnote 56} The social security tax rate was 21 percent of the wage, 15 percent paid by the employer and 6 percent by the employee. Yet many critics argued that employers were able to transfer the burden of payment almost completely to wages.^{Footnote 57} However, workers did not challenge the system. Payroll taxes were, like traditional customs duties, almost invisible, making their collection easier. Besides, workers had good reasons to support the system. Despite the attempts at unification, the social security system was based upon separate trade funds operated by the trade unions. Therefore, at least for labor leaders, collecting social security taxes was essential. On the other hand, workers regarded social security not as part of the tax regime but as part of Peronist social expenditures.^{Footnote 58} These taxes were legitimate because they backed a much-desired service: pensions. Pensions expanded dramatically under Perón’s rule; after 1948, the elderly were included even though they had never contributed to the system.^{Footnote 59}

Another example of the obliviousness of workers to tax matters is found in the so-called National Congress of Productivity held in 1954. This was a gathering of the Economic General Confederation (representing employers) and labor unions called by the government in order to achieve a global social agreement that might give a boost to the Argentine economy. Business representatives demanded a greater effort from labor in order to enhance productivity, but labor did not ask for a deepening of the progressiveness of the tax system. As a result of the congress, the executive offered both capital and labor tax benefits. In order to help renovate the machinery, the government suggested “improving the income tax scheme and the tax on extraordinary profits in order to face bigger costs of replacements.”^{Footnote 60} In exchange for this concession to employers, workers obtained “greater allowances for those incomes derived from personal work and for the popular consumed goods, in order to increase social welfare and people’s purchase power.”^{Footnote 61} The idea of building an affluent industrial society was thus part of the common credo of both social sectors.

This does not mean that employers and employees reached an easy agreement. But the main points of contention were not about taxation but about power within the factories. One of the business associations, the Economic General Confederation (CGE), demanded moderate wage policy and greater labor discipline in order to achieve increased productivity. It wished to remove any interference in the management of its business, in particular the so-called internal commissions, workers committees that checked employers’ power within the factories. Yet workers resisted industrialists’ pressures and internal commissions remained in place.^{Footnote 62}

Argentine workers did not challenge a capitalist order based on private property and manufactures. Their main aspiration was to obtain a decent situation within that order.^{Footnote 63} Thus, tax privileges for industrialists were not deemed illegitimate by labor. Economic reasons buttressed this position. The advance of industrialization with state support had ultimately helped the Argentine lower and middle classes to improve their standard of living.^{Footnote 64} Heavier taxation for manufacturers was not on the agenda of Argentine workers.

Since workers were mostly exempted from the income and other progressive taxes, this might be considered a fair deal. Still, this brought negative consequences. In the long run, as fiscal evasion rose, the state was increasingly unable to offer public services, which mainly affected lower-income groups. Furthermore, the search for alternatives to progressive taxation made Argentine fiscal policy more regressive after 1950. Last, the generalization of tax allowances for labor shaped a culture of disregard for tax matters within Argentine workers. To a large extent, this was the result of the peculiarities of the process of social inclusion carried out by Peronism. Horacio Gaggero and Alicia Garro pointed out that Peronist welfare policies were linked to labor and not to citizenship; those who did not work were not entitled to social benefits.^{Footnote 65} One can argue that workers became full citizens—enjoying social rights and governmental protection—thanks to their status as workers (and their support of the “truly” national movement, Peronism), but not through the payment of taxes. Citizenship and taxation diverged.

The income tax base remained relatively narrow during Peronism. Between 1946 and 1954, the number of filed tax returns climbed from 189,000 to 545,000. However, the number of potential taxpayers in 1954 was more than 10 million.^{Footnote 66} Wage earners had their taxes withdrawn by their employers and hence they did not have to file a tax return. Yet there were still many nonsalaried taxpayers who did not file a return.^{Footnote 67} This contrasts with what was happening about the same time in Western Europe and even in the United States. Taking advantage of the conditions created by World War II, the governments of these countries transformed their income tax scheme by making it not only more progressive but also making it a universal tax. In those years, progressive taxation became mass taxation.^{Footnote 68}

The fact that the Peronist government, so committed to indoctrinate society, refused to create a “mass tax culture” is striking. Argentina, unlike most Western European countries and the United States, was not involved in World War II and hence missed an important political opportunity for extending the tax base. Besides, by renouncing to extend the income tax, the national government was either attempting to preserve workers’ welfare or avoiding a clash with trade unions. Yet their were beneficiaries of this policy others than workers. Peronist welfare policies created more middle-class jobs than employment in the factories.^{Footnote 69} Moreover, by funding the welfare state on resources other than taxes, the government jeopardized its survival.

Peronist rulers preferred to finance their expansive policies through the control of foreign exchange, inflation, social security taxes, and public debt, rather than through a rise in progressive taxation. Progressive taxes ran into two problems during Perón’s administration: growing evasion and inflation. Between 1952 and 1955, nondeclared income was about 50 percent of total income. According to an Argentine Central Bank report, in 1956, if taxpayers had declared their total incomes, income tax revenues would have increase by 109 percent.^{Footnote 70}

Inflation played an important part. In 1945, prices rose 20 percent; in 1948, the rate fell to 13 percent, but in 1949 it climbed again to over 30 percent. Income tax rates increased automatically with any increase in nominal incomes providing stimulus to avoid payment.^{Footnote 71} Furthermore, inflation made the situation economically sound to defer the payment of taxes, even taking a possible fee into consideration, since the rising price was eroding the amount actually paid. As tax evasion increased, it created a feeling of frustration among those who still paid the income tax, encouraging more taxpayers to join the group of evaders.

Still, inflation was not the only reason for the rise in tax cheating. Increasingly many actors perceived taxes as part of an unfair and inequitable deal that the Peronist administration offered to Argentine society. Sometimes inflation and discontent with governmental policies became intertwined. Those who obtained their main source of income from a fixed or difficult-to-adjust source, such as retirees, were among the losers in the distributive battles of the day. In particular, real estate owners who had no other significant investments had to tackle not only the price increase but also governmental policies such as the control of rents and the ban on evictions.

By encouraging industrialization through a complex system of discriminatory allowances and deductions, the administration was creating apparent issues of horizontal inequity and stirring discontent among those who were hurt by its policies, such as merchants and rural producers as well as others.^{Footnote 72} The professional and middle classes felt that the government had conceded special privileges to manufacturers and workers. In addition, Peronism brought about a sort of cultural and social subversion.^{Footnote 73} The ideas and mores of the middle classes were challenged by the public presence of workers and the lower classes.

The impact of these psychological factors on tax compliance is difficult to assess, but there are some hints that prove their relevance. A 1960s survey among professional and businessmen noted that “the feeling that the rates were too high seemed on the whole to extend to the entire tax, except on the very top brackets. This attitude extended as well to corporate rates, though with somewhat less intensity,” and their “feeling that the trend toward investment incentives [as far as the income tax was concerned] may have gone too far.”^{Footnote 74} These feelings arose out of a growing distrust of the state’s institutions, particularly under Perón: “In the Perón regime, there was very little tax litigation since the taxpayers did not appear to trust the courts.”^{Footnote 75} The resentment of the middle and upper classes of Perón’s regime led to a veiled justification of noncompliance as far as taxes were concerned. Thus, an advisory commission on tax issues, constituted in 1956 (soon after the overthrowing of Perón) asserted: “The disdain for principles, the power without balances, created a general skepticism about the convenience of complying with a series of laws whose inspiration in the common good was doubtful. . . . The noncompliance of multiple and luxuriant rules was sometimes a self-defense or survival mechanism for the economic interests and, in general, a nonreprehensible solution, at least given the moral behavior of the very rulers.”^{Footnote 76}

Peronist attitudes toward taxation also played a role in the issue of evasion. The government showed leniency to tax evaders, which might have encouraged a further wave of noncompliance.^{Footnote 77} Partial amnesties and a lenient treatment had been permanent features of Peronist tax policies since 1949. In turn, this could have stimulated new waves of evasion and fraud. Although the government was attempting to send a message of cooperation, particularly to middle-income groups, taxpayers might reasonably understand that the tax bureaucracy was weak.

Merchants, lawyers, and independent professionals were not the only ones who evaded taxes. Big businessmen, particularly manufacturers, despite receiving special treatment in the tax scheme, also cheated the Treasury and took advantage of legislative loopholes. Thus, the exemption of shares in individual tax returns encouraged the transformation of assets into corporate assets, which benefited both tax dodgers and corporations. Moreover, and equally important, employers were increasingly avoiding fulfilling their crucial role as tax agents within the tax system.

Opportunity and inflation were powerful stimuli in encouraging businessmen to follow this path. The increase in the tax burden might have played a part in this as well. Yet tax rates for industrialists were still mild and the wide range of deductions and allowances that the Treasury offered to manufactures was something akin to a privilege. Furthermore, general economic policy was oriented toward industrial promotion, transferring income from rural to urban sectors, and offering credit at low and even negative rates.^{Footnote 78} Nonetheless, manufacturers boycotted the tax system. Why? In truth, there were other issues at stake beyond tax matters. Business groups were outraged by the state-led empowerment of workers within the factory and the wage policies carried out by Peronism.^{Footnote 79} Perón’s labor policy altered the economic elite’s trust in state institutions and undermined the tax cooperation that had been achieved during the 1930s.

Governmental attitudes toward the economic elites seemed to show their willingness to regain their confidence and cooperation. In 1954, the Argentine Tax Bureau (DGI) launched a campaign addressed to the elites. “The DGI . . . is carrying out an intense effort of approaching the people (acercamiento con el pueblo). . . . It has found in the mentioned economic forces an efficient cooperation.”^{Footnote 80} The “mentioned economic forces” was the CGE, the main manufacturers’ peak association of the moment. But other business-interest associations played an important role as well in the collection of the income and other “semivoluntary” taxes: “Such diverse associations as the stock market, the Rural Society, the Association of Real Estate Owners, and the Center of Grocers of this capital; the Chamber of Commerce, Industry, and Navigation of San Isidro . . . offered on that occasion their premises to receive the tax returns.”^{Footnote 81} By delegating power to the business representatives, the state was attempting to legitimize taxes and dispel the fears of the economic elites.

Epilogue and Conclusion

By the 1960s, Argentina had evolved from a “cooperative tax state,” based on few and usually direct taxes and the cooperation of economic elites toward an “adversarial tax state,” in which civil society, mainly the upper-income groups, challenged the legitimacy of taxation. The system had become an intricate palimpsest of taxes, duties, exemptions, allowances, and privileges.^{Footnote 82} The loss of tax legitimacy contributed to make the system more regressive.

This transformation came about because of a protracted social and political conflict and by the economic instability of the country since mid-twentieth century. Trust among taxpayers disappeared and even the working class lost its privilege position within the Argentine tax scheme. We have to take into account the growing legitimacy of noncompliance between 1950 and 1970 in order to understand the collapse of the fiscal system in the 1970s and the so-called debt crisis of the 1980s.

Yet some of the problems of the modern tax state had been present since its inception. In Argentina (and in other Latin American countries), the income tax was introduced in a context of authoritarian rule and exclusionary practices. Since its origin, the income tax was stained by the lack of legitimacy of the governments of the 1930. Nonetheless, the economic elites gradually accepted it as part of a bargain with political rulers.

Juan Domingo Perón reinitiated the process of (social) democratization that was interrupted in 1930. His policies were socially inclusive, even if prone to authoritarianism. Yet these progressive social policies were not accompanied by a massive extension of the tax base. One important consequence of this decision was to hamper the future development of the welfare state in the country. Furthermore, the Argentine working class did not integrate tax issues in its vocabulary, and taxation remained a largely neglected matter for Argentine labor. To a large extent, Peronism had helped make Argentine workers truly citizens, but not taxpayers.

Despite the mildness of progressive taxation and the absence of a general extension of the tax base, the tax system became increasingly challenged by those who resented Peronist social policies and its authoritarian strains. This demonstrated the close relationship between political trust and tax compliance. As time went on, inflation and economic turmoil encouraged tax evasion and fraud.

Argentina in the twentieth century was a conflict-ridden society. However, taxation was strikingly absent in these conflicts. Tax revolts had been scarce in the modern history of the nation, and this seemed to be a feature shared by many Latin American nations.^{Footnote 83} Of course, the absence of tax revolts is related to the possibility of tax evasion. To put it in Albert Hirschman’s felicitous words, “voice,” that is, revolt, is only an option when “exit,” that is, noncompliance, is unavailable.^{Footnote 84} The possibility of tax evasion might reflect the weakness of the state and in particular its tax bureaucracy. Yet a wide historiography has already established the growing capacities of the state’s institutions in Argentina since the last decades of the nineteenth century. Peronist distributive policies could not have been possible without the previous institutional development.^{Footnote 85} Further, during the 1930s and the 1940s, Argentina developed an efficient tax bureaucracy and was able to collect large amounts of revenues from the income tax and other progressive taxes. Hence the weakening of Argentine institutions and the demise of the Argentine tax state were parallel and entangled processes. Both were related to the increasing distrust of Argentineans among themselves and toward their rulers. In turn, this meant that in the second half of the twentieth century Argentineans were unable to collectively shape their tax system. In this sense, civil society shares with state administrators the responsibility for the fiscal problems of the nation.