Wednesday, November 25, 2009

Abolish Income Tax 5: Consumption taxes, other government fees

Income tax (both personal and corporate incomes) is one of the clearest proof of the absence of rule of law. Rule of law says the law is above everyone else, no one exempted and no one can grant exemption.

In the income tax system, at least in the Philippines, the following do not pay income taxes:

1. robbers, hold-uppers, smugglers, drug pushers, illegal gambling operators, etc.
2. many informal sector workers like ambulant vendors, jeepney and tricycle drivers, prostitutes, etc.
3. professionals; well mostly pay but highly understated income, resulting in very low income tax payment.
4. officials and employees of multilateral institutions like UN, WB, IMF, ADB, WTO, also staff of foreign aid govt. bodies like USAID, JICA, SIDA, CIDA, KOICA, GTZ, EC, etc. Here, Filipino staff of those agencies are expected to simply declare their income and pay income tax to the Philippine government, but they are not subject to mandatory and automatic income tax deduction, like personnel of private corporations and national/local government agencies.

If you count the above people, they are numbering millions of people. So what is the point of enforcing a law that exempts million of people from its application? Either you enforce the law that it applies to everyone, or you abolish the law that penalizes the honest and productive people.

Another importatnt reason: people hide their actual income and the source/s of their income, so it is very difficult to fully enforce the law on income taxes. But people flaunt their consumptions -- their new house, new car, new appliances, new cell phone, new computer, new jewelries and clothing, new travel, etc. Even the above-mentioned groups of people would tend to flaunt their material possessions. And since those consumption are generally covered by various consumption-taxes, it is much easier to collect these taxes.

Among the consumption-based taxes are:

1. value added tax (VAT)
2. excise tax (for alcohol, tobacco, petroleum products; new cars, mining, etc.)
3. travel tax (international travel)
4. amusement tax (collected by local government units, LGUs)
5. vehicle registration tax (plus mandatory "smoke emission test" fee)
6. real property tax (also collected by LGUs)
7. local taxes on top of VAT for various consumption goods and services.

And there are various transaction taxes and fees, among others are:

1. documentary stamp tax
2. import tax
3. import processing fee
4. forced and mandatory contributions in SSS, PhilHealth and Pag-IBIG
5. franchise tax
6. common carriers' tax

And of course there are dozens of other various fees and duties, collected by both national and local governments:

1. driver's license fee (plus mandatory "medical test" fee and "drug test" fee)
2. passport fee
3. police or NBI clearance fee
4. terminal fee (airports, seaports, some bus terminals)
5. birth certificate fee, death certif fee, burial fee
6. marriage certif. fee, annulment certif. fee, etc.
7. health and sanitation fee
8. garbage collection fee
9. building permit and inspection fee
10. electrical and fire department permit fee
11. residence certificate fee
12. village/barangay business location fee
13. city/municipal mayor's business permit fee

About corporate income tax, well, corporations do not pay taxes. People do. Corporations are just legal entities. People pay the taxes in behalf of the registered corporations. The consumers in the form of higher prices, the employees and managers in the form of lower wages, and the owners and stockholders in the form of lower earnings and equities.

Thus, if we abolish both personal and corporate income taxes government will not go "dry" as there are dozens of various taxes, duties and fees, plus penalties and mandatory contributions, that the government collects.

But a better result of zero income tax regime is that millions of Filipinos working abroad, foreign businessmen and entrepreneurs, and foreign corporations will be rushing to come to the Philippines and do business here. And in the process, create tens of millions of new jobs.

There is not a single country in the world I think, that has a zero income tax policy. Thus, the Philippines will be a unique investment-friendly country that will attract those businesses who want to flee the high taxes countries of the rich world. More businessmen, more employees, and more corporations will be paying more VAT and other consumption-based taxes to the government. This will more than compensate for whatever revenue losses to be created by the zero income tax policy.

I want to start an "Abolish income tax coalition" here in the Philippines. I hope many will join and we will present this single, important agenda to major political parties. Whoever will support this move, we will support in the 2010 elections just 9 months from now.

Interested individuals, email me at and we will arrange for initial meetings and actions.

See also Part 4, Ayn Rand and income tax, November 02, 2009

Warming Hysteria: From GW to CC, Green Protectionism

Yesterday, I gave a talk at the Las Pinas Chamber of Commerce and Industry, a local branch of the Philippine Chamber of Commerce and Industry. The President of Las Pinas CCI, Mohammad Yasin Badr, is my friend, my "classmate" in Rotary Intl. Dist 3830. The title of my paper was "Warming time out amidst climate hysteria" (22 slides, 1.5MB). It should be posted in our website within the week,

Another friend and "classmate" in rotary, Rodolfo "Inky" Reyes, who is a top official of the Philippine National Red Cross (PNRC), is in Nairobi, Kenya, for an International Red Cross assembly and meeting. Inky said that if I were in their event, I would love the discussions on climate change (CC).

Well, if I were in Nairobi, I'm sure I would figure in endless debates with many participants there who believe in anthropogenic [man-made] global warming or AGW. The warmers have almost monopolized the discussion for at least 2 decades that it is considered a sacrilegious act to even question AGW, much more to present charts and data that contradict that claim. That is why they declared a few years ago, "There is no more debate, shut up." And it is that dictatorial mindset that somehow crippled public debate, until the global temp data -- tropospheric and surface station data, ocean heat and ocean level data, Arctic temp. and Arctic ice extent data, etc. -- showed that there was NO warming that is happening for the past 10 years. The data have a negative answer to the Rotary test, "Is it the truth?"

The shift from GW to CC was a face-saving act by the warmers. They saw the temperature data, the warming years that should happen now as predicted by their computer models did not happen. So CC is used more often while retaining the warming scare. That is, melting polar ice and Greenland ice (due to GW), that will result in rising ocean by up to 7 meters (about 2 storeys high) just 90 years from now, according to Al Gore, more hurricanes, more typhoons-more drought, etc.

The important point is: there is NO scientific consensus yet of AGW and CC. Big debates still happening.

So if there is no consensus, there should be NO global coercion in energy and environment policies. But here we are, debating how much carbon emission cut by whom and by when. Kill or over-tax cheap energy sources like coal, subsidize from tax money clean but expensive and low-power output wind farms and solar farms, create climate bureaucracies from the national to provincial levels (look at political has-been Heherson Alvarez, now a "climate czar" secretary). And a number of politicians made big money putting up ethanol and bio-diesel plants because all oil companies, big and small, are forced to buy from them because of the mandatory E10 gas and B5 diesel products.

Further money from CC alarmism -- carbon taxes (in the US, about $300 billion/year in Obama cap and trade bill alone, on top of existing federal environmental taxes, on top of existing state and county env'l taxes), carbon trading (in 2008, $128 billion from corporations in the EU, Japan, etc., excl. the US as the US is not a signatory to Kyoto), carbon tariff and eco-protectionism.

So it's the distortions in energy, environment, fiscal and trade policies in almost all countries in the world that are being targeted by the warmers. Ecological central planning is a pernicious game plan. Some of those central planners wish that we stop riding our cars soon and ride bicycles "to save the planet" while they're jet-setting almost every month in endless global climate meetings, not to mention national and provincial climate meetings.

My related short papers recently:

(1) Warmers' Intellectual Dishonesty Uncovered

November 22, 2009

As incriminating emails and documents from the hacked website of, or stolen data from, the Climate Research Unit (CRU) in UK are spreading like wildfire in the web, the extent of intellectual dishonesty, if not intellectual prostitution, of a number of known warming scientists, are discovered. It's chilling to hear or read how those scientists deliberately alter or hide info that can show decline in global temperatures.

The most exposed scientists are Phil Jones, the head of CRU, and Michael Mann, main author of the "hockey stick" shape of global warming chart.

I wonder what alibi, if any, they can produce since the number of emails and documents that all seem to be original, are just too many? But if they admit that they indeed lied, that they indeed prostituted science for their political designs and desire for millions of dollars of research contracts, then that should be the end of their scientific career. They better go to the most isolated islands or the most uninhabitable place on Earth, with no internet or electricity, to escape global ridicule.

(2) No to Green Protectionism

November 17, 2009

Consumers need more choices and options, not more restrictions and prohibitions. Trade protectionism via carbon taxes and similar schemes limit choices and create more poverty, which push more poor people to use more environmentally-degrading technologies.

Please sign the petition against eco-protectionism,

The opening paragraph of the petition says it clearly:

You have no doubt heard about the UN’s climate conference in Copenhagen next month. Chief among the bad ideas being touted by environmental activists and politicians in the run-up to that meeting is a proposal to permit trade restrictions on the grounds that they will help to prevent climate change (for example by encouraging governments to sign up and comply with an international agreement to restrict emissions). Pascal Lamy, director of the World Trade Organization, has even sanctioned this approach, saying that the world’s priorities should be “climate first and trade, second.” And – surprise surprise – uncompetitive industries and other vested interests have jumped on the bandwagon.

Sunday, November 22, 2009

Huge drug firms laying off research staff

There was this news report last Thursday from Nature magazine.

Published in Nature 462, 375 (18 November 2009) | 10.1038/nj7271-375e

Huge cuts by drug firms

R&D closure is the latest in a series of hits to drug companies.
Pfizer is closing 35% of its global research and development space, according to a 9 November announcement. The New York-based drug company, which employs 14,500 people in research and development worldwide, has said that R&D personnel cuts associated with the closures will make up a significant percentage of the 15% company-wide job cuts planned. Pfizer, which last month acquired US drugmaker Wyeth, has disclosed no further information and did not return phone calls by press time. In early November, US drugmaker Johnson & Johnson announced plans to lay off about 8,000, but did not reveal how the cuts would affect its R&D personnel.

I asked guys in our local health coalition here in Manila, including those who favor bigger government intervention in healthcare, "Is this a good or bad development?"

No comment so far from any of them. For some people who dislike global capitalism in general, and big multinational pharmaceutical companies in particular, this should be seen as a positive development. New tools or policy schemes like compulsory licensing (CL) and drug price control are meant mainly to hurt the big multinational pharmas, not the local pharma. For instance, in the current drug price control policy, not a single product by United Laboratories (Unilab) was included, although Unilab is the biggest pharma company in the country, with sales equivalent perhaps to the combined sales of 2nd-3rd and 4th biggest pharma firms (GSK, Pfizer, Wyeth).

So if the big pharma multinationals are hurting, like even their patented drugs in the country are covered by price control, and the laying off of more than 1/3 of their R&D staff, in the case of Pfizer, then those who oppose big multi pharma should rejoice. Their goal is to publicly hurt, if not obliterate from the global economy -- using various government restrictions and regulations -- the big pharmas that they accuse of making huge profit at the expense of poor patients.

But those people do not realize, or at least they do not recognize, that those big pharma are the ones that invest huge money in high risk medicine innovation. The often glorified local, generic pharma companies do not risk their money and resources on medicine innovation, despite the fact that people around the world are demanding more innovative, more revolutionary medicines and vaccines.

Meanwhile, the US Healthcare Bill is 2,074 Pages Long...

I was surprised to read this update from Grover Norquist's facebook status, regarding the US healthcare bill. He noted,

"A word search of Sen. Harry Reid’s 2,074-page Senate healthcare bill (H.R. 3590) reveals that the term “tax” is used 183 times, “taxable” is used 164 times."

2,074 pages for a single bill? I doubt if even 10 percent of all US legislators will have the patience to read all pages of that bill.

Well, I'm not American, and I don't know most of the nuances of that bill. It's just the 2,000+ pages length of that bill that confounds me.

Thursday, November 19, 2009

Space, speed and the States

I wrote this while I was still in Indiana, early morning of November 17, 2009:

TERRE HAUTE, INDIANA – Space gives freedom. Speed allows one to do more per unit of time, or do something in a short period and have more free time later. One needs speed to cover a wide space or area in a short period of time. Space and speed, they have it in the United States and other developed countries.

Packing my bags for my trip back to Manila a few hours from now, and writing this article to reflect on the recent trips I made in the US. Filipino friends in the US who hosted me after my conference in Washington DC early last week drove me to a number of places here: north Virginia-DC, Indiana, and Missouri. I also came to the US early this year, in NJ-NY last March, and California last April, all to attend sponsored conferences. Those road trips plus the view from the plane across the US mainland, here are some of my observations.

One, expansive space of America, connected by thousands of kilometers of road network, farm lands so wide although cities and suburbs are expanding and taking away some of those farmlands. Except for a few big cities, spaces are just too wide: interstate roads, city roads, housing lots, school and university lots, malls and groceries with wide parking lots, etc. People from the Philippines, Hong Kong, Singapore, Korea, Japan and other Asian countries who are used to living and working in high- and medium-rise buildings will envy America’s huge residential, commercial and open spaces.

Two, very few buses that travel across America. The buses and trains – mostly owned and operated by the city governments – are concentrated in big cities. People own one or more cars to ensure their mobility anytime anywhere. If one goal of the American government is to reduce oil consumption (and carbon emission) and oil dependence from other countries, one solution is to encourage car pooling and public transportation. But this is not happening.

Three, too many cars and trucks traveling at high speed so they can cover long distances in a short period of time. And most cars have only one passenger, the driver. The presence of a big number of big cars and pick-ups that consume low mileage per gallon on the roads is also one indicator of how rich, or how profligate, the American economy is.

So, efforts by environmentalist groups or the carbon-reduction lobby groups to call for 50 percent, even up to 80 percent, reduction in carbon emission by the US economy by 2050 looks almost impossible. There is a big contradiction in the current policies of (a) train monopoly (Amtrak), interstate buses duopoly (Greyhound and another bus company), and city buses monopoly (by city governments), and encouraging car pooling and reduced usage of cars for long-distance travels. While there is a vibrant competition among domestic airlines that attract plenty of air passengers, most travels within states and inter-states are still done by private cars and trucks.

The American governments, recent ones and the current administration, in my assessment, are undertaking very unsustainable fiscal policies. With expenditures always outpacing revenues every year for two or three decades or more, non-stop, and the budget deficit of the federal government alone is on the trillion dollars per year since last year, there is only one inescapable implication: more taxes today and tomorrow, to pay those mountains of public debts that have been contracted by the US government. Note that most governments at the state, county, and city levels also have their own set of huge public debts too.

Then there is the expensive health care reform underway where the total fiscal cost range from US$850 billion to US$3 trillion over the next 10 years, based on both government and independent estimates. Not yet enacted too, but already passed in the lower House, is the energy and environment bill, a.k.a “carbon cap and trade” or “carbon tax and trade” bill that is projected to cost around US$300 billion per year, and this is on top of existing environmental taxes and regulations.

I reckon that with such huge fiscal obligations, from normal federal government deficit spending to upcoming health care reforms and carbon cap and trade bills, taxes and fees can only rise even higher. Woe unto the average American taxpayers!

But America has a wide land area, a resource that can attract and accommodate more investors and capitalists, more hard-working and entrepreneurial people. And these are the future generations of people who will pay off those huge public debts that have piled up for several decades and generations.

Since we live in a highly globalized and economically-interconnected world, there is no sense in “celebrating” the slow or stunted growth of some big economies because of the profligacies of their past political administrations. A big and dynamic economy somewhere is always good news for all other smaller economies elsewhere. The people of those big and dynamic economies are their (a) export markets, (b) employers of their underpaid workers, skilled or unskilled, at home, and (c) source of in-bound tourists and foreign investors. So a rich and dynamic America, a rich and dynamic China, Japan and India, a rich and dynamic Europe, are always good news for the poorer economies of Asia and other continents. The theory of “imperialism” by the rich countries that exploit poorer countries does not hold water anymore.

Economic growth and capitalist development can always create new spaces, new areas, for human development. Ever higher residential and office skyscrapers for instance, free up space for public parks and sports stadium. Development in land reclamation technology makes use of otherwise pesky soil erosion problem to further expand urban land area by thousands or millions of hectares.

Where there is capitalist dynamism and individual liberty, there is always room for individual, family and corporate freedom – in space, in speed and inter-state, inter-country economic connection.

Tuesday, November 17, 2009

Oil Politics 6: Price Control, Political Opportunism and the Oil Speculators

An article by Romy Bernardo on "Oil Price Controls" was uploaded at the "UP School of Economics Alumni Association" section of the UPSE website,

If only the UPSE can take back the PhD degree it gave to President Gloria, the shameless economist. Nowhere in Econ 11 or Econ 102 and higher econ subjects was it ever justified that price control as an economic policy is good. It's bad and stupid, period. The short-term gains are very small compared to the long-term losses of low and uncertain investor confidence in the country. Investors would think twice or thrice, at putting up more gasoline stations in the country knowing that the government can declare oil price control anytime for whatever reason/s and for unspecified period of time, forcing the players to sell at a loss.

The President’s populist decision is of course echoed and supported by her other officials. In particular, the Secretaries of the Department of Energy, Department of Justice, Press Secretary and the Executive Secretary.

The State should be spending its time running after criminals, killers, rapists, kidnappers, carnappers, corrupt officials, etc. There are too many of them on the loose yet. Running after private enterprises which are in the business of selling various goods and services -- from medicines to hamburger to gasoline to hair cut, etc. -- is none of its business. Unless they are selling counterfeit or substandard medicines, hamburger with poison, gasoline with water, haircut with head injury, etc. If people think gasoline is expensive, then they should car pool and ride bicycles or walk. If the government thinks this is unfair, then government should also put a price control on fuel products (from Saudi, China, etc.) or refined products from Singapore, etc. Since it cannot do this, then it should to abolish taxes on petroleum.

But government is often a bunch of hypocrisy. Price control on the final products but no control on taxes, regulations and bureaucracies, not to mention corruption and robbery.

There is price for stupidity. Especially when the stupid one is the government. But at the end of the day, it is us consumers and taxpayers who get screwed. We are the ones who will suffer from oil rationing and shorter operating hours of gas stations. Government does not suffer, it always gets the first priority in any oil rationing.
But government stupidity should not go unpunished. The President’s opportunism should be punished. It is up to us how we should punish the administration, not only in the coming elections, but more so in writing the future history literatures of Philippine economic policies.

Of course there are plenty of jeepney drivers and operators, Mr. Jose Concepcion of Consumer and Oil Price Watch (COPW) and the hordes of other fuel consumers who favor oil price controls, even calling for government oil subsidy – from other taxpayers who economize on oil consumption. That's one danger of democracy. The demagogues and the mobs use coercion, State coercion, to enforce their will upon the less-noisy minority. If the majority think that oil prices are expensive, then they should economize on their trips, or they should ride bicycles and walk. But they should not coerce you and me to pay extra taxes so their oil consumption will be subsidized, if not provided free.

Socialists and populists like everything to be provided cheap, if not free. At the expense of everyone else, of course, especially the rich and middle class. For socialists and populists, to become rich and well off is a crime. Hence, they should be punished with high and multiple taxes.

Such thinking that persists up to this day, encouraged by coercion inherent in supposedly a democracy, is among the main reasons why economies stunt or do not grow to their potentials. And why policies driven by envy persist.

Meanwhile, I posted this last July 11, 2008.

Are Oil Speculators to Blame?

As world oil prices remain high, many people and analysts are blaming the "oil speculators" for the current "artificially high" oil prices.

I don't go along with these analysts. It's true that many oil speculators made lots of money here, along with rice speculators, gold speculators, real estate speculators, currency speculators, and several dozen other types of speculators, on the products or services that they are dealing with.

Speculation is like gambling, like stock trading, like observing and guessing whether your current girlfriend or boyfriend will be a good spouse someday or not. Hence, speculation is a perfectly rationale human behavior.

When some people think that there will be a war between Israel and Iran exactly 30 days from now, then they will sell their houses, their cars, their other properties and stocks, and buy as much oil futures they can at $140 or $145 a barrel, and hope to sell at $160 or $180 in 40 to 50 days.

But more people will speculate that such war possibility will happen in 9 years, 11 months and 29 days from now, there's no need to panic now, and will spend their money buying the houses, cars, stocks and other properties of those guys in the above group, at a bargain of course.

So who's the "better" speculator, the former or the later?
Any bet one picks, does not matter. And it's not only traders who speculate. Consumers also speculate. A person who thinks that oil will reach $200 within 10-12 months from now will sell all his current big cars at a bargain, and buy those small, fuel-efficient, or "green" cars even if they are expensive now. While a person who thinks the $200 oil will happen 3 or 4 years from now, will buy the big cars sold by that person at a bargain.

Speculation will happen, it is a perfectly rationale human behavior, so long as there is instability and unpredictability. And unpredictability will be with us for as long as we live, for as long as the sun will shine tomorrow and 4 or 5 billion years from now. Because change will always be with us. If we don't initiate change, our neighbors or other people will. And we will be forced to adjust or adapt to the changes initiated by other people.

So, are oil speculators to blame? NO.

See also:
Oil Politics 1: Bush vs. Chavez? March 12, 2007

Saturday, November 14, 2009

Economic freedom means taller people

WASHINGTON DC – Economic freedom means the ability of the people to pursue social and entrepreneurial activities that respond to the various needs of their own and that of other people. Thus, when the demand for food and clothing increases, then the supply of food and clothing also increases as producers anticipate upward changes in demand for such important commodities.

Compare that situation in an un-free economy. The demand for food and clothing increases and the supply of more guns and ammunitions increase as people are coerced to produce more guns and battle tanks instead of more food, more tractors, and more clothing. The public can cry and complain, but there are more soldiers and government officials per million people to harass and intimidate them; there are more walls and fences to cage them.

The 20th anniversary of the fall of the Berlin Wall was the main theme of the 2009 Templeton Freedom Awards Conference sponsored by the Atlas Economic Research Foundation. It was held this week, November 9-10, at the Renaissance Mayflower Hotel in this city. There were plenty of good speakers from several free market-oriented think tanks and private institutes from many countries in the 1 1/2 day conference.

Among such speakers are those from the former Eastern European countries like Martin Chren of the F.A. Hayek Foundation in Slovakia. People in these countries have first-hand experience what it is to live under communism and economic central planning. Martin and his institute conduct various educational programs for thousands of young Slovaks every year to teach the value of economic freedom and individual liberty. Martin also discussed the economic miracles that happened to his country after they adopted the low, simple and flat income tax rate of 19 percent in 2004, plus other economic liberalization measures.

Another great speaker was Ms. Natasha Srdoc of the Adriatic Institute in Croatia. Natasha discussed how she and her team members in their institute engage not only Croatian but also other EU government officials in various public policy discussions. They also conduct various public education programs and engage local media for their several free market advocacies.

From Asia, one good speaker was the President and CEO of the Center for Free Enterprise (CFE) in Seoul, South Korea, Dr. Chung-ho Kim. Chung-ho is a friend since several years ago. Unlike the East Europeans who have succeeded in tearing down the Berlin Wall, the South Koreans still live with a hostile neighbor just several kilometers north of Seoul. And the North Koreans are caged not by a wall, but by a fence.

In his presentation, Chung-ho showed one satellite picture of the Korean Peninsula at night time. While there were lots of lights in the south, indicating lots of lighted houses, shops, buildings and streets, there were very little areas in the north that were lighted, the north is mostly dark in the evening. Chung-ho also asked, “How short is the North?” and showed several pictures -- of a captured North Korean soldier beside his South Korean counterpart, of leader of the north Kim Jong Il and the founder of Samsung. In both pictures, the soldier and leader from the north were shorter than their counterparts from the south. Chung-ho then said that on average, North Koreans are 6 inches (around 15 cms.) shorter than South Koreans, although they have the same genes, have the same climate and same landmass.

What is the explanation for this? Those from the north are malnourished, they do not eat enough. Former North Korean President Kim Il Sung and his son, current President Kim Jong Il, have succeeded in producing more soldiers and warriors than farmers and food producers from the millions of young North Korean children. North Korean communism has discouraged or killed agribusiness and farming for profit while South Korean capitalism has encouraged farming for profit.

So while former US President Ronald Reagan stood at the Brandenburg gate in the late 80s and called on Russian President Gorbachev and the East German President to “tear down this wall”, Chung-ho’s call to Mr. Kim Jong Il of North Korea was to “tear down this fence!” Later in the evening during the “Freedom Dinner,” Chung-ho toasted the 300+ guests to a wish of “Let our North Korean brothers and sisters experience freedom soon.”

I spoke on Day 2 of the conference. My presentation was entitled “Advancing liberty: shrug the walls harder” and it should be available in our website soon. The other Asian speaker in the conference was another friend, Ms. Arpita Nepal of the Prosperity Foundation, Nepal. Arpita explained that Nepal is currently headed by the Maoists and those in the “opposition” are mainly the social democrats and the Marxist-Leninist socialists. What a way to develop the economy of Nepal.

Going to the US East Coast is always a tiring activity for someone coming from south-east Asia like the Philippines. From the time I entered Manila airport (NAIA) to the time I got out of the Reagan DC airport, was exactly 24 hours. So I arrived at the hotel tired and sleepy. Only to be rejuvenated the following day with a cast of inspiring and articulate speakers, leaders of free market institutes that dream and work for a world of free and responsible individuals, people who aspire to help tear down the various walls – or fences – of modern restrictions by big governments like huge and multiple confiscatory taxes, trade protectionism and dictatorship.

The way has been shown to us 20 years ago by those living in Eastern Europe. They have tasted and experienced the value of economic freedom, after living under political and economic central planning for more than four decades since the end of World War II.

Let us not be swayed by renewed calls to try economic and ecological central planning, in the Philippines and elsewhere. Let us tear down or hurdle our personal and political walls and fences, one at a time.

Saturday, November 07, 2009

Rising walls of forced collectivism

Walls can protect, but they can also restrict. When people voluntarily put up a wall to protect themselves from unfriendly forces – like the Great Wall of China -- then it is to preserve their freedom. But when people are caged by a wall to prevent them from freely moving to another place, then that is coercion and dictatorship. Think of the Berlin Wall then.

Three days from now, the collapse of the Berlin Wall will be commemorated in an international conference to be sponsored by the Atlas Economic Research Foundation, the “2009 Freedom Dinner and Conference” on November 9-10, 2009, to be held at the Mayflower Hotel, Washington DC. The conference’s theme is on “Tearing down the wall” with the Berlin Wall’s collapse as starting point.

Many governments around the world have erected various walls and restrictions that limit individual freedom. Unlike the Berlin Wall, such new walls are mostly non-physical, less -tangible. They are the multitudes of regulations and prohibitions that declare for instance, that entrepreneurship and job creation is a crime, unless the would-be entrepreneurs will secure first dozens of signatures, permits, accreditations and authorizations, and pay various taxes, fees and fines, from various government agencies, both local and national.

I will be one of the foreign speakers on the 2nd day of the conference. As I was preparing my powerpoint presentation, I was pondering the various walls that the Philippine governments – Executive branch, Legislative branch, autonomous units like the central bank, and local governments – have erected and expanded so far. There are just too many. For instance, just to put up a medium-size company, entrepreneurs have to secure 15 different procedures and wait for 2 months (at least) and spend a handsome amount of money in various regulatory fees and taxes, excluding getting the services of other companies or individuals who will facilitate those procedures. That is, they wait only 2 months, instead of 3 months or longer for people will little or no experience in opening a business.

And once the company or enterprise is set up, entrepreneurs will have to grapple with 47 different taxes and fees every single year, spend about 4 weeks total just to comply with those different payment, and surrender up to almost 50 percent of a corporation’s profit in different taxes and mandatory contributions. Those regulations are definitely confiscatory and are driven by envy, nothing else. Those business regulations and tax laws are effectively saying, “It is wrong, it is bad, to be earning big when so many people are poor and jobless. So the State will confiscate as much as possible from those earnings to be distributed to the poor.”

And furthermore, even if one has complied with each and every regulation in starting a business and in operating a business, there are policy reversals which again, are driven by envy. These regulations include price control and mandatory subsidies by private enterprises of the public.

There are two recent and graphic examples for this: the pharmaceutical and petroleum industries. July this year, many foreign pharmaceutical companies were ordered by the President, through the Department of Health (DOH), to slash the prices of their most saleable products by 50 percent. There are a number of heavy penalties if they will disobey the State. Some or many of those companies were therefore, coerced by the State to sell at a loss.

Recently, price control was imposed on the petroleum industry. All oil companies, from the “Big 3” to the “medium/small many”, were ordered by the President, through the Department of Energy (DOE) and the Department of Justice (DOJ), to sell at their prevailing price as of October 15 in Luzon. While world oil prices were creeping upwards, local prices are stuck. Oil companies that do not want to sell at a loss will be declared “economic criminals” and be imposed heavy penalties by the DOE and DOJ.

And even worse, there are now moves to re-regulate the industry. Meaning the politicians and energy bureaucrats will set the price of oil products. Pricing of oil products will be a function of pleasing the politicians and bowing to the demands of the militant transport groups and activist media. It will no longer be a function of world oil prices – not of the Peso-Dollar exchange rate; not of the level of competition among many oil companies; not the costs of energy, labor, and taxes – but by politics. I wrote a position on this entitled, “Consumers’ welfare through deregulation, not politicized pricing” (A position paper on new moves to re-regulate the oil industry).

As of today, there is no timetable of when the government will lift the price control order for both industries. Almost all of the business groups in the country – joint foreign chamber of commerce, Philippine chamber of commerce, and other local business associations, have spoken and issued that price control is wrong. The short-term gain is very small compared to the long-term loss of business confidence in the country.

There are many other walls applied in the business and personal lives of the people living in the Philippines and living abroad. Those walls and prohibitions would have been more tolerable and acceptable to the public if those administering the walls and prohibitions are themselves subjected to their own prohibitions. But in many developing countries, there is lack of promulgation of the rule of law. There are always two sets of rules – one for the public, one for the State administrators and politicians, and their friends and family members. A simple traffic law of “No left turn”, for instance, always has double meaning. It’s No-no for ordinary motorists, but allowed for government and police vehicles or private vehicles whose drivers can name-drop some high-ranking government officials.

The “good of the collective” has always been a convenient excuse to rein in individual freedom. The supremacy of the forced collective over individuals or voluntary collectives has always been the dominant justification for erecting new walls, and expanding or raising existing walls. And because they are mere alibi, the reality sets in: society is falling into dictatorship, little by little, sector by sector.

Let us rise to tear down our respective walls. One at a time.

Monday, November 02, 2009

Abolish Income Tax 4: Ayn Rand and income tax

A friend reacted to my posting, "Service charges and capitalism", via a quote from Ayn Rand, below:

When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed.

—Ayn Rand, Atlas Shrugged (1957)

I thanked him for such appropriate quote. Ayn Rand was very emphatic of the virtue of free market capitalism. In a free society, individuals are free to do ALL things they want, except for a few explicitly-stated prohibitions (eg, no killing, no stealing, no physical injuries, no rape, etc.). In an unfree society, it's the reverse: unless there are no laws about them, things and actions are PROHIBITED.

For instance, entrepreneurship and job creation is now prohibited -- unless one gets lots of permits and accreditations, and pay dozens of taxes and fees every year, from people who produce nothing but paper work and legal prohibitions.

There is also a noticeable presence of a big number of central planners in modern society -- at local governments, national governments, and foreign aid/multilateral bodies. People who justify existing high and multiple taxes, propose new taxes, to support new bureaucracies and programs that will redistribute wealth and entitlements.

Another friend made this comment:

I think the essence of taxation is that citizens bear the burden of government and its bureaucracies. The question is the proportion that the taxpayers bear from what they earn from the societies they live in and how this tax is determined. In my view, while we cannot get away from income tax, this should be as little as possible because income arises from personal or corporate productivity in general.

Consumption taxation - the other end of the spectrum - taxes the taxpayers' propensity to spend what he or she created from productivity, not productivity instead. I, therefore, think that it is in within governments legal right to tax income or consumption. I just think that government should reward the productive by taxing their consumption and letting them keep most of their income.

I thanked him for his consistency in advocating a zero or very small income tax. Free market capitalism and dynamic entrepreneurshihp cannot thrive in a fiscal environment characterized by envy. So-called "progressive taxation" of higher tax rate for higher income is driven by envy, pure and simple. The lazy and less hard-working won't be taxed while the industrious, efficient, ambitious and hard-working will be taxed to the top margin stated in tax laws.

A zero income tax policy will encourage hard work and entrepreneurship. Retaining various consumption taxes (VAT, excise tax, real property tax, travel tax, motor vehicle tax, amusement tax, etc.) will ensure that the tax-hungry government and its various bureaucracies will be assured of continued supply of sure money. So it is still a positive-sum policy: you encourage private sector entrepreneurship, while retaining the bureaucracies and pork barrel of people running the government.

See also Abolish Income Tax 3: Taxes and Congress, October 08, 2009