Tax Cut 30, Trump's 20% CIT, deregulation

When the White House proposed a drastic corporate income tax cut (from 39% to 20%), 25% for single proprietorship, they did not suggest a tax hike somewhere to "compensate for lost revenues" like the Dutertenomics' tax-tax-tax.

Copy-pasting portions of these press releases and short blog posts from the WH.

"* The U.S. corporate tax rate has been higher than the OECD average for almost 20 years.

The average total corporate tax rate among OECD nations is 24 percent, while the United States is nearly 40 percent.

* The U.S. average corporate tax rate is almost 10 points higher than China’s, according to the Congressional Budget Office." -- Sept. 29, 2017.

https://www.whitehouse.gov/the-press-office/2017/09/29/unified-tax-relief-framework-will-bring-jobs-and-businesses-home

"Our plan is based on four simple principles: reducing taxes for working families, simplifying the tax code, cutting taxes for businesses large and small, and making it possible for American companies to bring profits home to America to create jobs and opportunities here."

-- VP Mike Pence, Oct 03, 2017.

https://www.whitehouse.gov/the-press-office/2017/10/04/remarks-vice-president-tax-reform

"In 1989, the year the Berlin Wall fell, the average statutory corporate tax rate imposed by central and sub-central governments in the OECD was 43 percent. In 1989, the comparable rate in the U.S. was about 39 percent. In the time since the Wall fell, the OECD average corporate tax rate has trended downwards to its current 24 percent, about half of its 1989 level. The U.S. corporate tax rate, however, is still stuck in the same place it was when the Berlin Wall crumbled almost 20 years ago.

There is now a broad consensus in this country that it is time to “Tear down this rate.”

-- Kevin Hassett, Chairman of the Council of Economic Advisers.

https://www.whitehouse.gov/blog/2017/10/05/unified-framework-tax-reform-well-motivated-research

"The America First Tax Plan will bring historic tax relief to the American people through a framework that is “based on four key ideas,” said the President. First, the plan will cut taxes for every day, hardworking Americans, taking the burden off the middle class. Second, the tax code will be dramatically simplified, allowing Americans to file their tax returns on a single sheet of paper. Third, the business tax rate will be lowered to 20 percent, making business in America competitive again. And finally, the “American Model” will encourage businesses to return from overseas, bringing trillions of dollars to the economy." -- Sept. 28, 2017. 

https://www.whitehouse.gov/.../10/03/middle-class-miracle

Good summary of support from the Editorial Boards of WSJ, NYPost, WTimes, WExaminer, Inv Business Daily, National Review. Nothing from NYT, WaPo, CNN, BBC, etc. Perhaps they love more taxes, more regulations, more welfarism, more statism or state worship.

https://www.whitehouse.gov/the-press-office/2017/09/28/wtas-praise-continues-roll-president-trumps-unified-framework-tax-reform

Accompanying drastic tax cut is drastic deregulation and de-bureaucratism.

"* In 2000, completing paperwork for Federal regulation cost an estimated $236 billion (up from $143 billion in 1980). Assuming the same proportion of compliance officers’ salaries out of total paperwork cost, the cost of paperwork increased to $881 billion in 2015.

* Regulation is especially burdensome for small businesses: the cost per employee of complying with regulations was higher for small firms ($11,724) than it was for firms with over 100 employees ($9,083)...

* There were approximately 45,000 more pages in the Federal Register, which reflects the flow of new regulations, than 40 years prior." -- October 02, 2017. https://www.whitehouse.gov/blog/2017/10/02/how-deregulation-can-increase-economic-growth

I wonder why many "libertarians" and free marketers would be silent or even implicitly attack this tax cut plan by Mr. Trump as "favoring the rich" or "favoring Trump businesses". Perhaps the quick answer is that many libertarian-anarchists argue that "taxation is theft" and hence, the tax rate should not be 39%, not 20%, not even 1%, but zero. Zero taxes, zero government as we know it.

Fine, if one is talking to students or fellow anarchists. But if one is involved in public policy debates, engaging government officials, legislators, etc. is necessary and inevitable. It is not possible to advocate "zero government" while engaging government for lesser regulations, lower and fewer taxes, lower non-tariff barriers in trade, and so on.

For now, I just like what I see in the Trump fiscal policies.

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See also:
Tax Cut 27, The Furusato tax in Japan as possible model in citizen empowerment, October 14, 2016 
Tax Cut 28, On Trump's planned 15% income tax, January 23, 2017 
Tax Cut 29, Culture of exemptions and culture of envy, February 06, 2017 

Trump's Joint Address at US Congress today, March 01, 2017
BWorld 136, Income tax and the politics of envy, June 12, 2017 
Tax-tax-tax, Free-free-free, August 09, 2017

Business 360-32, Energy independence in Asia

* This is my article in Business 360 magazine in Kathmandu, Nepal, December 2015 issue.
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Energy Independence in Asia

Energy independence is a virtue that a country must pursue. And this independence can mean two things. One, independence from only one major energy source because if that resource would experience a major price hike or supply disruption, the economy can be endangered. And two, independence from only one major country supplier because if there is any political or economic tension and instability in that country, energy supply to the home country can also be endangered.

Here is a review of electricity production per country and what energy sources they come from.

Laos has14.9 bill. kWh production in 2014, but no data on distribution of energy sources. Brunei produced 3.9 bill. kWh in 2012, 99% of it from natural gas. And Cambodia produced 1.4 bill. kWh in 2012, 60% from oil, 36% from hydro.

Nepal has high dependence on hydro power. While this is a good thing as Nepal has lots of rivers and lakes, big and small, this can be dangerous too during severe winter and frozen water stays longer in the mountains, meaning longer power supply disruption.

Mongolia has high dependence on coal and this can produce some dangers in the future if the price of coal shoots up very high, although currently, coal prices remain low and stable. Brunei too has high dependence on natural gas, but this might be an exception to the risks mentioned above because Brunei is a major natural gas producer and exporter in Asia.

When I was in Nepal for one week in January 2015, the lack of electricity was among the most prominent issues that I observed. Many road intersections have no stoplights, all hotels have generator sets, many streets are dark at night, and so on.

In previous papers in this magazine over the past two years, this column has advocated the need to liberalize and deregulate the energy sector in Nepal and other countries in Asia. In particular:

Prioritize the liberalization and deregulation of the power generation sector, encourage more hydro power companies, big and  small, to come and build more dams, or expand power capacity in existing dams.

Second, allow other indigenous energy production like coal power if there is sufficient amount of coal that can be mined and extracted within Nepal.

Third, facilitate more power imports from India especially that India is building more coal plants now. Coal is generally cheap and supply from abroad is stable. This means the construction of more transmission lines and facilities from India to Nepal.

Fourth, deregulate power rates. Let those who can afford to pay higher electricity rates in exchange for more stable supply do so, whether imported from India or locally produced. This has been happening actually for many years now as the richer residential areas and big commercial centers have their own generator sets. Their willingness to pay higher rates in exchange for stable electricity supply is already there. Power rate deregulation will encourage faster construction of more power generation plants and transmission lines.

Fifth, privatize some power plants that produce more losses than revenues for the government, sell to private power companies in a competitive bidding. Privatization of course should be coupled with industry deregulation, to encourage competition among more players.

And finally, reduce the number of permits, bureaucracies, taxes and fees for companies putting up new power generation plants and transmission lines.  Invite and call in more power generation companies, more suppliers of large engines and turbines from many countries to enter Nepal.

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See also:

Business 360-28, FDIs in South and East Asia, August 22, 2015 

Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015

Business 360-30, Freedom to trade in South and East Asia, October 29, 2015
Business 360-31, SAARC, RCEP and free trade, December 23, 2015

BWorld 29, Paris COP's emission cut targets vs. energy needs, December 06, 2015 

Energy 50, Cheap oil, natural gas and coal prices, December 15, 2015

Fat Free Econ 44: Deregulate Weather Forecasting

* This is my article today in interaksyon.com.
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This may sound like a “politically incorrect” statement so let me explain why.

One, there is no market failure in providing the service as the scientific and technical know-how to gather data and interpret them can be done by private enterprises. Weather forecasting need not be an exclusive function of the government.

There are several independent weather analysts in the country that often have better analysis than the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), and they charge the public nothing. These guys get raw data from the meteorological agencies of Japan, Korea, Hong Kong, Taiwan, Hawaii/US, etc. They charge zero because they also get their raw information for free.

But once they charge for their services, private weather forecasting enterprises must produce value added over the free forecasts of those meteorological agencies of other countries. They must invest in modern equipment and tools, and get more trained meteorologists, oceanographers and climatologists to do more detailed analysis of short- and long-term trends in weather and climate.

Two, privatization would allow competition for more accurate, more detailed and industry-specific weather forecasting.  There is a business there. Among the major clients will be airlines, shipping lines, bus lines, hotels, beach resorts, mountain resorts, agri-business companies, event organizers, TV and radio stations, local governments, national government agencies (Air Transportation Office, MARINA, Coast Guard, Department of Agriculture, etc) and so on.

Since these companies and institutions are in for the long haul, they will be interested to see long-term perspectives on climate. Like how long will the current global cooling last, its effect on national, regional and global food production, tourism, public health and other economic and social sectors.

Three, privatization would put accountability to those forecasts. There will be a private contract between the forecasting service provider and its clients. If the latter made bad business decisions as a result of frequent false forecasts by the former, the forecasting company can be sued, it can go bankrupt and its officers can go to prison. To avoid this, forecasting companies will be forced to upgrade and modernize their tools and interpretation of raw data, and their information dissemination.

In the case of PAGASA, thousands of lives are lost, while billions of pesos of private property are damaged -- such was the case when Typhoon Sendong hit Mindanao two years ago -- because PAGASA failed to see the trajectory of the storm. Have PAGASA officials been sanctioned? Any failed or wrong analysis, or over-reaction (declaring an LPA immediately even if there is none) is a reason for PAGASA to say, "we need more money". So inefficiency is rewarded with more tax money.

PAGASA’s budget has risen through the years. It got P1.20 billion in 2011, followed by P1.28 B in 2012, and P1.46 B in 2013. The bulk of its budget is capital outlay, which means the purchase of more modern equipment and offices, followed by maintenance and other operating expenses then personnel services. The salaries and allowances of its personnel have also risen (see table below). 

Table 1. PAGASA Staff, 2012-2013

Source: DBM, Staffing Summary.

Private weather forecasting enterprises will be penalized if they make frequent bad forecasts. No tax money will be used to put them up or bail them out if they are inefficient. They are under pressure to provide more accurate, regular updates, hour by hour or even every 30 minutes in the case of severe weather disturbances. Each failure in forecast translates to financial losses, not to mention loss of reputation.

In the US, there are at least eight private weather forecasting companies that have private subscribers and make money. These are on top of US government meteorology agencies like the National Oceanic and Atmospheric Administration (NOAA)-National Weather Service (NWS) and the Joint Typhoon Warning Center (JTWC, Hawaii). These private services are as follows:

- AccuWeather, www.accuweather.com

- CustomWeather, www.customweather.com

- The Weather Channel, www.weather.com

- Schneider Electric (formerly DTN Meteorlogix), http://www.schneider-electric.com

- Forecast Advisor, www.forecastadvisor.com

- Intellicast, http://www.intellicast.com

- My Forecast, http://www.myforecast.com

- Weather Bell, http://www.weatherbell.com

In UK, I know of one solar physicist in London, Piers Corbyn, who owns a private weather forecasting company, Weather Action. And he often beats the UK Meteorology Office in predicting weather three months or one year ahead. He uses Solar Weather Technique (SWT) in making his predictions, and he gets many subscribers. 

Aside from the above reasons, I have a few personal reasons why I want to see a deregulated weather forecasting system in the country, and even a privatized PAGASA.

One, when I got married in Iloilo City several years ago, my siblings and nieces from the nearby island of Negros Occidental were unable to attend. PAGASA foisted signal no. 2 in Region 6, so the Coast Guard prevented all inter-island boats from plying the Iloilo-Bacolod route. But my sister and brother said there was not even rain in Bacolod that day, cloudy but no rain or strong wind. The same in Iloilo.

Ordinary folks can only complain of PAGASA's inefficiency but beyond that, there is nothing we can do. We cannot terminate PAGASA funding nor sue it as there is no direct and explicit contract between the public and that agency. Some people would even say, "Oh, PAGASA made lousy analysis again. Perhaps they need more money, Congress and DBM should give them more money." There is no accountability for a monopoly.

Two, I have long wanted to compare the country's temperature data. For instance, I want to know how June 2013’s average temperature was compared to the same month in earlier years. This data is unavailable in the PAGASA website, nor can it be requested for free. The data is for sale, and one must go to their office in Quezon City, pay and get the official receipt, and wait for about a week to get the data. We taxpayers give them money for their annual operation, and we have to pay them again to get data.

PAGASA will benefit if there are many private weather forecasting companies in the country as it will be forced to be on its toes and so provide more accurate short- and long-term perspectives in weather and climate.

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See also:

Fat-Free Econ 41: Cut Income Taxes, April 08, 2013 

Fat Free Econ 42: NSCB vs SWS Data on Poverty, April 30, 2013 

Fat Free Econ 43: On the Philippines' Fast Economic Growth, June 04, 2013

PAGASA Bureaucracy 1: On Temperature Data, July 14, 2011.

PAGASA Bureaucracy 2: Deregulate Weather Forecasting, December 20, 2011 

PAGASA Bureaucracy 3: On Giving Local Names to Storms with International Names, August 20, 2012

Oil Politics 7: Oil Price and Fare Hikes, Public Transpo Deregulation

With the recent spike in local oil price hikes recently as world oil prices were rising, there are growing voices and lobbying to demand higher fare for jeepneys, taxi and buses. While it is understandable that movement of fares (upward or downward) should follow movement in petroleum prices, I find it irrationale that politics should be used in determining when and how much, such fare movement should happen.

It is chaotic and politically complicated if government transport officials will always call for public hearing. Supporters and opponents to come, including those who ride on the issue so they will get good media coverage, which helps in their political work and lobbying, like those running in the forthcoming elections.

It is possible to detach politics from fare setting. Here are some mechanisms that may be worth considering by the various stakeholders.

1. Encourage corporate brands of jeepneys and taxis. Jeepney drivers and operators will become conscious of the corporate brand that they carry and passengers will remember the corporate brand of particular jeepney and taxi groups. Thus, some passengers will remember and avoid taking a particular jeepney or taxi corporation where drivers are discourteous and road maniacs that get into frequent accidents. And passengers will remember those jeepney or taxi corporations where drivers are courteous and friendly, give the exact change, and maintain their units in good running conditions. Competition among various jeepney and taxi corporations, not among single units, will give more comfort and safety to the passengers.

2. Deregulate fare-setting. Some jeepney or bus lines that do not maintain their units well will be forced to charge lower fares per kilometer while those jeepney or bus lines that give passengers comfortable and safe rides can charge higher fare. For instance, some bus lines can field buses with only 40 seats instead of the usual 60 seats, and charge minimum fare of P20 to P25 for the first 4 kms. Other bus lines can dispatch crammed buses (say 70 seats or more) and charge only P10 minimum fare for the first 4 kms. If fares are deregulated this way, some ugly and not regularly-maintained jeepneys will either slowly vanish from the road, or they will be forced to charge only P5 minimum fare for the first 4 kms., because passengers will have other options to ride the more comfortable jeepneys or buses even if they pay a higher fare.

3. Deregulate routing. Some jeepney or bus lines can dispatch their vehicles near the gates of big private villages in the suburbs (say Novaliches, Fairview, Antipolo, Las Pinas, Bulacan, etc.) to Makati, Ortigas, Eastwood, Manila, and so on. Then people will be encouraged to leave their cars in their house when they go to their offices or schools as they will take only one or two rides, not four or more rides.

At the moment, people who will not bring their cars from say, a village in Fairview, Quezon City to Makati, will take 4 rides or transfers. First, tricycle from their village gate to the main road. Second, jeepney or air-con van to MRT station. Third, MRT to Buendia or Ayala station, and fourth, jeepney or bus or taxi to Ayala or Buendia avenue. If one is wearing proper corporate attire and/or carrying a laptop and other important documents, it is very inconvenient and unsafe to be moving from tricycle to jeepney to the train and back to jeepney again. So even if there is heavy traffic and parking is expensive, people are forced to bring their cars to work or school, which exacerbates road congestion and parking nightmares in major commercial and business districts. The national government, through the LTFRB, and the local government created mini-monopolies on certain routes, like tricycle monopoly and jeepney monopoly.

Just encourage competition among bus or jeepney lines, also taxi lines or corporations, so that passengers will have plenty of options. If people will find that such options are safe, comfortable and economical, then they will not insist on bringing their cars everyday to their offices or their kids’ schools. There will be less traffic congestion, less air pollution, less parking problems, and more savings for the public.

And we will avoid politicized fare setting. No need for any public hearing, no need for any political and media lobbying, no need for any intervention by politicians and government transport officials.

Driver and operators of jeepneys, buses and taxi will be forced to maintain their units in good conditions, they will be forced to become more courteous to their passengers. Passengers need not even complain to the government if the service of a particular bus or jeepney line is lousy. Passengers will just stop riding that particular corporation and let their friends and acquaintances know about their bad experience. This kind of passenger boycott is worse than being reprimanded and penalized by any government transport agency.

Nearly two years ago, I wrote something about petroleum taxes.

VAT on Oil Products

July 10, 2008

As the price of petroleum products keep rising, the call for the lifting or abolition of value added tax (VAT) on these products gets louder. While the goal of such measure -- help reduce the price of oil products -- is laudable, the policy tool being proposed is wrong.

The single most important element of the "rule of law" concept is that the law applies to everyone and exempts no one. Any exemption to the rule immediately invalidates the "rule of law" and automatically becomes "rule of men". When applied to commodities, the law should apply to all sectors or products and exempt not a single sector or product.

In the crafting of the current VAT law that was enacted in 2005, a few products were exempted from coverage of VAT. These include agricultural and fishery products in their original forms, meaning raw vegetables, meat, fish, fruits, etc. Once they are processed, like dried mangoes or canned sardines, the processed product is covered by VAT.

The exemption of these products, and the attempts by many other producers that the products or services they produce be exempted from VAT, was both a proof and indicator that the 12 percent VAT rate was high, so that almost everyone wanted exemption from the tax law.

Now that it is a law, the spirit of "apply to everything and exempt nothing" should be retained. In this sense, I am not in favor of lifting or abolishing VAT on oil products. Or any other products and services.

And yet I also want the prices of those VAT-covered products and services be made lower, so how can it be done considering that VAT is one of those significant price inflators?

One of my favorite alternative policy options is the abolition of import tax (if it is not abolished yet) of all petroleum products, and abolition of excise tax on gasoline products. Current excise tax is about P5.60 per liter. These will help reduce the price of oil products.

Another policy option is a lower, flat income tax, especially on personal income tax. Any tax cut is equivalent to "salary increase". Such de facto "pay hike" especially for fixed income earners, will enable many people to better adapt to higher oil prices since it is a global phenomenon anyway, and other commodities with higher prices with higher take-home pay.

How "low" should the flat tax be to have a maximum positive result to the people? Zero income tax is the best. But the best is not always the most practical and feasible. A 10 percent flat income tax, to my mind, is the second-best alternative. At this rate, many people, from public school teachers and policemen to private sector ordinary employees to struggling small entrepreneurs, will benefit. And the State will still collect taxes at a much broader tax base as more people will be encouraged to pay income tax because the rate is lower and complying with it is simpler.
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See also:
Oil Politics 1: Bush vs. Chavez? March 12, 2007

Oil Politics 2: Oil prices and climate change, October 30, 2007

Oil Politics 3: $100/barrel Oil Price and Petroleum Taxes, November 13, 2007

Oil Politics 4: Is Expensive Oil Good for the World Economy?, March 18, 2008

Oil Politics 5: $150 a barrel and Government Public Transpo Monopoly, May 22, 2008

Oil Politics 6: Price Control, Political Opportunism and the Oil Speculators, November 17, 2009