Noynoy Aquino and His Tax Cut Plan

I firmly believe that Pres. Noynoy’s “tax cut, less spending” plan is a puerile fantasy, as the Constitution, created during the term of his mother,  is the very source of nanny statism in the Philippines. The political-economic nature of the Charter is high-spending big government. The charter mandates all state departments and agencies to make the State the benevolent provider of the needs of the people. We must return to the 1935 Constitution and then adopt more safeguards against state abuses and intervention.

An Objectivist friend is getting more optimistic with the incoming administration of president-elect Noynoy Aquino who has been plugging his ‘no tax increase’ plan even before he was officially declared president of this cash-strapped nation. He said that the economics graduate president-elect somehow knows what he’s talking about. My simple reaction to my friend’s early admiration for the charismatic leader is “let’s see.”

I’m not that optimistic with the seemingly ‘libertarian’ (although I’m not a libertarian) pronouncements of Sen. Noynoy Aquino who will be inaugurated as Philippine president at the end of the month. It’s too early to form my opinion on the economic stand of the president-elect knowing the nature of politics in this country. In Philippine politics, friendship is very temporary and loyalty to the constitution is already a thing of the past. It’s not that I don’t believe Noynoy has the palabra de honor (word of honor) to fulfill his promise; it’s just that political pronouncements in Philippine politics are highly relativist in that sense that most politicians’ concept of truth, loyalty, or honesty only exists in their minds. What Noynoy said yesterday might be amended or revised tomorrow.

But that’s not only the reason why I’m not cheering Noynoy’s ‘no tax increase’ platitudes. I’m giving him the benefit of the doubt since he has full control of every word that he delivers to the public. Like you and me, the president-elect can say whatever he wants to say to the public. He still owns his body and he’s the master of his own faith and convictions in life. But what he cannot have full control of are the people- the moochers and looters- around him. In order for a leader to effectively and responsibly govern a whole nation, he must be able to reign over a few number of people around him.

When I learned Noynoy Aquino bared his plan not to impose new taxs during his presidency, the first interrogatory question that popped out in my mind wasn’t “why” but “how.” As a student of Objectivism, I’m against any form of taxation. I consider taxation a legalized process being undertaken by the government to steal the money and confiscate the property of the productive members of our society. I’m in favor of voluntary taxation, which means the people have the freedom of choice whether they want to donate parts of their income to the government. Don’t ever tell me this is not possible, because if the government does its job well (e.g., the police, the armed services, and the law courts ) the people would be very much willing to support the government.

Expectedly, many Filipino intellectuals raised their brows and questioned Noynoy’s tax cut plan. This is expected considering the political climate and the kinds of philosophy that deeply contaminated the consciousness of most Filipinos.

In one of his public speeches after his proclamation, Noynoy told members of the Makati Business Club that he would pursue the rationalization of fiscal incentives given to investors as part of efforts to plug revenue leaks and lower the budget deficit.

“We will refrain from imposing new taxes or increasing tax rates,” Aquino told the business forum. “I strongly believe that we can collect more taxes at the BIR (Bureau of Internal Revenue) and higher duties at customs if we become more serious in curbing and punishing tax evasion and smuggling.”

The president-elect announced that lower taxes is part of his “vision  to transform our country.” He said that lower tax rates should be “enjoyed by all rather than have some enjoy absolute tax exemptions while we burden the rest of the economy with very high tax rates.”

The top corporate tax rate is 30%. Other taxes include a value-added tax (VAT), a real property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 14%. Despite domestic political pressure, authorities did not repeal the VAT on petroleum products during the recent economic slowdown.

However, Noynoy’s tax plan did not sit well with some government officials. For instance, Finance Undersecretary Gil Beltran urged the president-elect to take advantage of the people’s optimism during the first 18 months in office to raise new taxes. The official said that Noynoy can use his popularity to convince businesses to pay higher amount of tax.

“New tax measures should be put in place within the first 18 months because elections would follow after three years, at which time people may no longer be as keen on these policies,” Beltran said.

A former national treasurer, Leonor Briones, told the media that the next administration would have nothing to use given the already high deficit from the Arroyo administration. “The problem that he would face is: what would he spend for the next six months? The deficit is already high,” said Briones, citing that in the first quarter the deficit has reached P134 billion and may ballooned to P200 billion.

Have you ever noticed the pattern in the arguments of these government officials who have been urging Noynoy to raise new taxes? They explicitly and implicitly raised the following arguments:

  • The new administration must levy new taxes because taxation is the lifeblood of government being the main source of revenue;
  • New and higher taxes must be imposed since the country experiences budget deficit;
  • Taxes are necessary to sustain the government’s welfare statism;
  • Taxes are metaphysically given, meaning like life and death, they are part of our existence.

All these arguments and principles are being taught in school, particularly in economics and law schools. In school, several taxation theories were invented in order to justify the imposition of taxes. Taxes are necessary for our protection, book authors say. Since we benefit from government services, it is only imperative that we pay our taxes, others argue.

But there are two aspects missing in all these platitudinal defenses of taxation and welfare statism: individual rights to life, liberty, property and government spending. Everybody is entitled to the fruits of his own labor. However, with the invention of the theories of taxation that justify government’s violation of individual rights, every wage earner and businessman (depending on the amount of income per year) is mandated, coerced and obliged to contribute a portion of his earnings to the government. In law school, they call taxation a voluntary contribution, but it’s the only ‘voluntary contribution’ where one might get coerced or penalized by the government for not abiding by the tax code.

The ‘tax cut plan’ of Noynoy is, no doubt, highly laudable, but it remains to be seen. One important aspect that exposed the contradictions in Noynoy’s ‘tax cut plan’ is government spending. The government cannot lower our taxes while it goes on with the degree or level of its spending. Both (tax cut plan and government spending) must jibe with each other. Noynoy’s tax cut plan would only create fiscal and economic disaster without cutting government spending. Noynoy cannot simply talk about his plans to cut taxes; he must also have the courage to tell the public that there’s a need to cut government spending. He may start by cutting some useless, redundant, incompetent government offices. He must also call for the abolition of the countrywide development fund (CDF), otherwise known as pork barrel, that goes to senators and congressmen. Reform must start within the government and it must be done gradually.

I remember saying the following statement in one of my previous blogs:

“There’s ONLY ONE WAY for a President or any politician to improve the economy and the lives of the people: Let the job and wealth creators mind their own business. The government is not or should not be in a business of job creating. Do not vote for any presidential contender who tells you that his primary goal is to create jobs. Even our semi-socialist Constitution does not mandate the President to create jobs. To improve our economy the government must decontrol, let the businesses do their jobs, and respect and protect individual rights.

“The government must lower income and corporate taxes by half, if necessary, in order to attract domestic and foreign investors. Logic tells us that if there were more companies, large or small, doing business in an economy, there would be more jobs and taxpayers, thus a higher tax collection for the government. The government must deregulate and respect competition and the free market principles. If there’s unbridled competition, businesses would be compelled to lower their prices and offer more efficient services and better quality of products to consumers. It must also privatize the incompetent government owned and controlled corporation (GOCCs) that are a source of corruption, nepotism and cronyism. Let the competent capitalists run these government-owned firms. This is what I call  CLEAR AND CONCRETE ECONOMIC PLATFORM!”


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