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Tuesday, February 25, 2020
Home Op-Ed Columns Opinion on Page One Wage earners will have a higher tax rate than corporate fat cats

Wage earners will have a higher tax rate than corporate fat cats



“Corporations are people,” Mitt Romney, a former White House candidate and now Utah’s junior senator, once famously quipped. Agree.

Publicly-listed corporations are owned by shareholders and run by professional managers. There is nothing inanimate with corporations on the two critical issues of ownership and management. They are owned by people and run by people. There are cases where the founders still run these corporations post-listing. These are also people, only larger-than-life.

Privately-held corporations, also, have listed incorporators and officers, all people.

We should throw in a qualifier. Corporations, as we know them are owned by people of real wealth (those-who-can-buy-a-small country wealth to plain peso billionaires and multimillionaires) to people of above-average wealth. While we all like to say that small- and medium-enterprises (SMEs), mostly registered as corporate entities, are the backbone of Philippine business, this is not true in real life. What move and shake Philippine economic life are the big corporations.

Corporations, the legitimate ones, cannot be identified with my kind, small farmers and workers who struggle for basic survival, the poor or even with the wobbly SMEs.

All things considered, the number one policy of taxation, for it to be fair and equitable, is to place the burden of paying taxes primarily on corporations — and the corporate fact cats that control them. Because they are profitable and because they profit off the people who use their products and services. Which is specifically very true in this country of ours, a country of free-spending overseas Filipino worker families.

If you read the third quarter reports of the country’s corporate giants, you will find out that corporate earnings are sometimes beyond the imagination of the ordinary Filipino: P27-billion profit here, P32-billion profit there. Those in my economic class, whose possessions are limited to the few sweaty pesos in their callused palms, find those amounts are plainly mind-boggling.

One more thing on the need to shift the burden of taxation on the corporations. Ordinary people are burdened by so many taxes and levies. Even the lowly paid wage earners exempted from paying taxes in the first round of the Duterte administration’s so-called tax reform package pay a 12-percent valued-added tax (VAT) for most things they buy, from food to medicine and the school needs of their children. For the poor and low-income earners, a 12-percent VAT imposition is a very cruel. Yet, the poor pay 12-percent VAT for every so-called VATable item they buy.

Let this sink in: every VAT payment by the poor is a payment of a 12-percent tax.

In this context of two duelling realities — profitable corporations owned by the wealthy and low-income workers burdened by tax payments and other levies — is a question uppermost in the minds of the tax-burdened ordinary citizens. Why is the next phase of the so-called tax reform focused on cutting the corporate income tax until it reaches a rock-bottom rate of 20 percent in 2029?

Then this follow-up question. What kind of society would create a tax system wherein the corporate fat cows have a lower tax rate than the struggling ordinary wage earners who have an average tax rate of around 25 percent?

The official reason of government is that cutting the income tax rate of corporations would, I hate using this word, “incentivize” the corporations to use their tax savings to create more investments, thus shoring up economic activity in an unprecedented level, thus creating more jobs and opening up more opportunities across the board.

That sounds nice on a theoretical level. But it is not true.

The corporate profits that would pile up from lower corporate tax rates will primarily go to two things. First, to shareholders. Second, to share buybacks. There is no empirical evidence, here or elsewhere, that proves that tax bonanzas of corporations are redirected to investments, to putting up more factories, to more assembly lines, or, to increasing the compensation of their labor. Reality does not work that way.

The Trump tax cuts, which were advertised by the Trump economic team as a major lift to investments and the US economy, were used by the benefitting corporations to buy back shares and further enrich the already-wealthy shareholders.

A part of the tax bonanza went directly into the shadowy corporate entities put up by the corporate fat cats in the Cayman Islands and elsewhere, the same corporate entities specifically put up for tax dodging purposes.

The regressive tax system proposed under the second phase of the so-called tax reform, called the Tax Reform for Attracting Better and Higher Quality Opportunities (Trabaho) Bill, and which anchor is corporate income tax (CIT) cut, will take place in a Philippine society with a horrifying degree of economic inequality.

The Top 1 percent, represented by the corporate fat cows, vacuum up 60 percent or more of the yearly income gains. The 99 percent fight for the crumbs.

The CIT cut will worsen that level of economic inequality as the major burden of raising state revenues will be passed on to the struggling wage earners.

By 2029, if Congress does not take stock of the injustice that the Trabaho Bill will deliver on ordinary Filipinos, the office secretary will have a higher tax rate than the corporate bosses.

In the current US Democratic primary, the most talked-about proposal for economic justice is the wealth tax proposed by leading candidate Sen. Elizabeth Warren on wealthy Americans.

Many American billionaires oppose the wealth tax proposal. Their reasoning — tax revenues can be improved by plugging tax loopholes and ending unnecessary incentives. The same reasoning invoked in the Trabaho Bill. You can cut the CIT and make up for the loss by plugging loopholes and ending unnecessary incentives.

The usual “paste and cut“ that is carelessly invoked to place the heavier tax burden, not on the wealthy but on the poor.

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Today’s Front Page February 25, 2020

Today’s Front Page February 25, 2020