Death is the only thing certain in Mexico. The country has one of the lowest tax-collection rates in the world, and that partly explains why the government of President Vicente Fox needs cash. Last year taxes accounted for just 10.5 percent of GDP, compared with an average tax-collection rate of 18 percent in other developing countries (about 30 percent in Brazil and Argentina). By some estimates one third of the Mexican economy, more than $200 billion a year, can be found in the “informal sector”–meaning off the books. From big businessmen who practice creative accounting, to street hawkers who never issue receipts, to merchants who bribe taxmen, evading taxes is part of the national culture. After decades of corrupt politicians and inefficient bureaucrats, many Mexicans say they simply don’t trust the government to spend their money.

Changing their minds is Fox’s biggest challenge. He dethroned the long-ruling Institutional Revolutionary Party (PRI) last year with more promises than he cares to remember: to build more schools, to reduce poverty, to improve health centers. To pay for it all, Fox has proposed a fiscal- reform package, which has been submitted to the legislature, aimed at increasing government revenue by 2 percent of GDP, or about $12 billion. The plan would lower the highest tax brackets for individuals and businesses in hopes that more people will start paying their share. Fox has also proposed luring street vendors onto the tax rolls with promises of small loans. The centerpiece of the fiscal-reform bill is a new 15 percent tax on food and medicine–an idea that’s already sparked fierce debate in the Congress. The stakes are high. Economists say Mexico needs a more stable flow of income to reduce its national debt, to wean the country from dependence on oil and to make the country more attractive to foreign investors.

Fox took office last December with approval ratings of 80 percent, but his plan to overhaul the tax system has ended his political honeymoon. Last week protests erupted in Mexico City over the proposed tax on medicine–despite government promises to spend part of the new revenue on subsidizing drugs for the indigent. Mexico’s Congress closed down last week without ending its debate on the bill. Barring a special session, it won’t take up the fiscal package again until September. Critics of the tax plan say that it punishes those who already pay taxes with-out doing much to bring deadbeats onto the tax rolls. Analysts predict that a watered-down version of the tax package will get passed. If it doesn’t, Fox’s policy agenda, and his political credibility, will suffer a major blow. “This bill is everything for the time being,” says Rogelio Ramirez de la O, a Mexico City economist.

Fox may not find succor in other Latin American countries. Even the success stories are bogged down with problems. Brazil has imposed so many new levies that tax administration has become a nightmare. Argentina now has a 21 percent value-added tax on consumable goods. It has boosted government revenue but angered the poor, who lose a larger portion of their income to the tax than the wealthy. The new taxes haven’t helped Argentina pull out of a three-year recession, or its current fiscal crisis. That doesn’t mean new taxes aren’t helpful–without the additional revenue Argentina would be in even worse shape–but they aren’t by themselves the answer to longstanding economic woes.

Magu, less than two hours north of Mexico City, shows how entrenched Mexico’s tax-fearing culture is. Residents pay no income tax, no property tax and usually no sales tax. Most stores are family-owned kiosks, as an elected town council has tightly controlled who can move in or open businesses. The town lacks a high school and has only one paved road. But the most surprising thing about tax-free Magu is how much it resembles any other poor, dusty pueblo–a fact not lost on taxpayers in neighboring towns. Neither the federal nor the state government has dared challenge the status quo. “Nobody wanted to get involved. It would cost too many votes,” says Gabino Jasso Aguirre, the mayor of Nicolas Romero, the municipality to which Magu belongs, and a member of Fox’s National Action Party (PAN). “People are angry after 70 years of single-party rule,” he says. “They see the government as a bunch of rats doing nothing but robbing.” In hopes of dampening the anti-tax spirit, Jasso has sought to show that taxes can be beneficial. He’s assigned a police patrol car to the town and donated cement and other materials to build several small bridges. Residents are doing the labor themselves.

A majority of Magu residents voted for Fox, but they still don’t want to be bothered by the taxman. Martinez, the defiant sheriff, welcomes the new government as a change from the old PRI leaders “who never helped us.” But, he adds, “the government is obligated to send help to the towns, regardless of whether we pay taxes.”

And of course, as any Magu resident will tell you, the viceroy’s age-old decree makes the whole debate irrelevant anyway. Except that only a few people even claim to have seen it. Some say the state government stole it in the 1960s. Others suggest that it is in the possession of Juan Polenciano, the 50-year-old town grocer. Indeed, he says he once had a glimpse–more than 40 years ago, when his father was its caretaker: “He had it for many years. Then he gave it to somebody else.” Who? “There are some things so sacred you can’t talk about them. But if you want to see it, the National Archive has a copy.” No such document can be found there either. The municipal historian has spent three years looking–to no avail. The anti-tax legend does appear in calligraphy on the brick wall of a beer warehouse. That is proof enough for the people of Magu.