Migration and Freedom 17: US Taxing Nationals Abroad

Migration allows people to move to other places or countries that give them some optimal utility and satisfaction. No place can be perfect of course, but depending on one's priorities in life, say a good paying job, children's education, pursuit of arts and leisure, marrying someone, other reasons, people settle on a place, even temporarily, that give them that optimal degree of satisfaction or fulfillment.

Many foreigners go to the US to work, study, or stay temporarily. Many US citizens also go abroad to work, study, or stay temporarily. Fine, it gives people freedom to pursue their goals and priorities in life.

But a problem will arise if the US government will impose tax obligations to their citizens who have lived and migrated abroad. Or even people who happened to be born in the US and hence, have US nationality, single or dual citizenship, but have moved and grew up abroad. This situation is considered by some people as "tax imperialism" by the US government to their citizens abroad.

Below are three news reports of some Americans moving out and renouncing their US citizenship, or children of migrants born in the US and going back to their parents' home countries.

The first is a rather perplexing story. With the new tax regulations by the Internal Revenue Service (IRS), these Americans have two choices: pay up those tax obligations in the US to avoid further fines and penalties, or renounce their US citizenship and cut clean from such tax obligations as they already pay taxes to their home or host countries where they are staying and working now.

Here are the news reports:'s an interesting news report from the NYT yesterday.
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(1) Many Americans Abroad Surprised by Tax Code's Nasty Bite

By BRIAN KNOWLTON

Published: May 10, 2012

http://www.nytimes.com/2012/05/11/us/11iht-expats11.html?pagewanted=1&_r=1&ref=global-home

WASHINGTON — As Americans abroad chafe under sharply increased U.S. pressure to declare foreign holdings and catch up on back tax filings, one group with tenuous ties to America and the benefits of citizenship is feeling particular pain and unease.

They might be called “accidental” Americans, born during their foreign parents’ brief stay on U.S. soil, or born abroad to American parents who long ago settled elsewhere.

After lifetimes abroad, many in this group, whose total size is impossible to estimate, had believed that because exemptions left them owing no U.S. income tax they had no obligation to file returns; many have been tripped up by a requirement that they still declare their foreign bank and financial accounts.

In interviews, several people declined to allow their full names to be used for fear of complicating already complex tax situations. “Some people have never even lived in the U.S.” and learned belatedly of American tax responsibilities, said Sonia Stewart, a tax accountant in Grayson, Georgia, who works exclusively with overseas filers. “People are panicking.”

Some typical laments include:

•Roy, 37, a lifelong Canadian resident and citizen whose dual-national mother fears the U.S. tax authorities will target the modest savings account the Canadian government provides him as a developmentally disabled adult;

•Jonathan, 34, a teacher whose American parents migrated to Canada 39 years ago. He considers himself 100 percent Canadian — a maple leaf is tattooed on his back — and believed until last year that he did not need to file a U.S. return. Tax advisers now tell him he must file eight years’ returns, at a cost in fees and fines in the thousands, lest an eventual U.S. inheritance be jeopardized;

•The teenage children of Peter Hallworth, a Briton married to a Swede living in Malmo, Sweden; the children were born in the United States but lived there only as infants. Mr. Hallworth, having heard horror stories, now expects to urge his children, when they reach adulthood, to renounce the U.S. citizenship that up to now he had treasured.

Fiscal Irresponsibility 24: More on the PIIGS and European Debt

Below are some charts that I got from various sources, on some fiscal and economic data of Portugal, Italy, Ireland, Greece, Spain (PIIGS) and the other major EU economies. I will limit commentary to the sub-heading in each chart. These images are mostly self-explanatory anyway.

(1) Declining GDP growth while rising unemployment, PIIGS.

source: NYT,   http://www.nytimes.com/2012/05/16/business/economy/leaving-the-euro-may-be-better-than-the-alternative.html?_r=1&ref=global-home#


(2) Government spending 40 to 60 percent of GDP (They need lots of taxes to finance it; taxes not enough, so they borrowed like crazy).

source: Dr. Ed's Blog,  http://blog.yardeni.com/2012/05/europes-wonderland.html

h/t: Prudent Investor Newsletters,  http://prudentinvestornewsletters.blogspot.com/2012/05/unraveling-of-europes-wonderland.html


(3) Governments of G7 countries notorious for fiscal irresponsibility.

source:  http://www.economist.com/blogs/graphicdetail/2012/05/daily-chart-4


(4) 13 European economies have unemployment rate of 10 percent or higher

source:  http://www.economist.com/blogs/graphicdetail/2012/05/european-economy-guide

Meanwhile, in a facebook discussion, my German friend posted that one has to "question the collective wisdom of markets a bit when you see them panicking on the news about Greece..."

I think those bankers and market traders were just watching how much other EU governments (Germany, France, Belgium, etc.) would use their taxpayers' money to bail out Greek pensioners, welfare dependents and the huge bureaucracy. Meaning if more taxpayers' money from other European countries are expected to flow in, those bankers and stock traders will do their usual stuff. If less taxpayers money from other countries are coming in, they will panick and head for the exit. So its a question of how much moral hazards problem is being contributed by those bail out money from other European taxpayers. The bankers and traders mainly react to those moral hazards problem and do their thing as profit-maximizing or loss-minimizing individuals.

Governments created those huge public debts, they are not personal or private debts. These are accumulation of past over-spending and excesses. So the bankers and market traders are watching how much of those excesses in the past will be reformed and thrown away, or how much will be retained or even expanded, via bail out money from other European (or Chinese) taxpayers. Internal reforms like deregulation, liberalization and privatization of some (or many) government assets, and more personal responsibility in many social sectors, do not seem to be highlighted there.

Fiscal irresponsibility, spending always larger than revenues,  living beyond one's means, heavy welfarism even if revenues are not enough to sustain it, reliance on endless borrowing. These are the marks of statism bordering on near socialism policies.

* See also Fiscal Irresponsibility 23: High Debt and Unemployment and Parliamentarism Hard Sell, May 02, 2012

Drug Price Control 27: Letter to Sen. Pia Cayetano

Last Thursday, May 10, after attending the meeting of the Congressional Oversight Committee on RA 9502, I went to the office of Sen. Pia Cayetano and gave this letter.
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10 May 2012

SEN. PIA S. CAYETANO
Chairperson
Committee on Health and Demography
Senate of the Philippines
Pasay City

Dear Sen. Cayetano,

We would like to submit our position paper on SB 5 of Sen. Loren Legarda and SB 2960 of Sen. Manny Villar, creating the Drug Price Regulatory Board, Amending RA 9502.

The current drug price regulation and control policy (EO 82 mandating MDRP, and DOH Advisory Council Resolution No.2009-001 on GMAP) will turn three years old this coming mid-August. There are many indicators showing that the policy is a failure in its stated goal of making certain drugs affordable to the poor.

Here are the reasons why:

1. The policy contradicted, if not defeated, the goals of RA 6675, the “Generics Act of 1988”. That law was successful in promoting cheaper generics, off-patent drugs to the public. The drug price control policy however, encouraged people to shift back to the branded and innovator drugs made by multinational pharmaceutical companies as they have been coerced by the government to slash prices by 50 percent.

2. The policy benefited the rich and upper middle class who would be buying those drugs whether their price remained at prevailing or discounted levels. Many if not all of the 22 drug molecules that were covered by the policy have cheaper, off-patent competing drugs already available. The poor were patronizing the off-patent drugs, which are still cheaper than branded drugs even if their prices were slashed by half.

3. The policy has adversely affected many local generic manufacturers. If they were selling their drug at P8 per tablet vs. the multinationals’ P15, the locals would make enough profit as the poor will patronize their products because of the big price differential. After the price control, the P15 becomes P7.50 and the local generic manufacturers now have the “more expensive” drugs. If they have enough leeway to further bring down their price to only P4 or lower without sacrificing the quality and safety of their drugs, fine.

But if they do not have enough leeway, then they will be forced to pull out their drugs rather than sell at a loss. Or worse, simply close down if the affected drugs are the main products of that generic manufacturer.

Climate Tricks 8: Catastrophic Scare for Climate Money

Here is another proof that the catastrophic anthropogenic global warming (CAGW) is mainly about money-money.

A bill in Philippine Congress, called the "People's Survival Fund" (PSF) bill, authored by Cong. Erin Tanada et al in the lower House, and Sen. Loren Legarda and other Senators in the upper Chamber, wants to distribute millions, or billions of pesos of tax money to local governments and possibly environmental NGOs to improve climate change adaptation and mitigation. This is on top of existing "fight climate change" laws and programs. The bill will also create a new bureaucracy, the PSF Board, under a new bureaucracy, the Climate Change Commission (CCC).

And why so? This news was written and published in December 2007, suggesting that by end of summer this year, ie, around 3rd week of September 2012 or just four months from now, the Arctic will be ice-free. Scary.

Original source: http://news.nationalgeographic.com/news/2007/12/071212-AP-arctic-melt.html

Reposted in:  http://wattsupwiththat.com/2012/05/12/the-arctic-ocean-could-be-nearly-ice-free-at-the-end-of-summer-by-2012/#more-63430

This prognosis is similar to another prediction made in January 2007 saying that up to 4.5 billion people could this this year due to "global warming-related causes" -- so guys, take cover! See, Climate Tricks 1: 4.5 Billion People to Die This Year, January 03, 2012.

Meanwhile, here are more recent stories from more realistic, non-alarmist climate change analysis.

China Watch 17: Using Drones Over Scarborough, SCS

Last Friday, I posted this in my facebook wall. See the exchanges after that, until today:
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I support this suggestion from Stephen P. Cutlerr: "The Philippines may find a better "return on investment" for its military money by buying fleets of drones, instead of 48 F-16s at millions each, with millions for maintenance, and even more millions for pilots."

Shadow Hawk Munition portends a new era of warfare

www.gizmag.com

Lockheed Martin's new Shadow Hawk weapon is deceptively small considering the influence it will have on warfare

Ian  Thanks Noy... Im sharing this one!

Nonoy On Steve's wall where he posted the above link, I wrote,
" I support this Steve. We need more information as we go to internationalize the Scarborough/Spratlys issue. Only rent-seekers in the government and their armament suppliers want those expensive military hardware. The cheapest, and peaceful way to expose and shame China, is more information, more international discussion and negotiation, never, never, never, military confrontation."

To Mr. Nic O who wrote, "Make that armed drones with all sorts of missiles and guns, plus information warfare capability." I replied to him,
"Hi Nic, you want more money from us taxpayers, for more missiles, more guns, more warfare capability? Come on, what do you want to achieve aside from impoverishing us further, win a war with China?"

There is a possibility though, that the "more missiles, more jet fighters, more war" camp will win the debate, If that is the case, I propose that we get money from privatizing Camp Aguinaldo + the PMA campus in Baguio. DND and AFP HQ be moved to a cheaper place in Cavite perhaps. Get the money quick and modernize the AFP. They should never, never, get it from taxpayers' pockets.

1. Philippine government via the DFA should pursue international diplomacy and multilateral negotiations, endlessly.
2. Civil society and private citizens can launch various activities, no central plan, no central bureaucracy, to expose and shame not only the China government bullying but also the local military rent-seekers.
3. Do not entertain the military and war option. It is simply an idiotic path,.. http://funwithgovernment.blogspot.com/2012/05/china-watch-16-scarborough-shoal.html

Doods i'm in favor of building nuclear capability as a deterrent and to provide cheap nuclear energy to the country

Patrick Nonoy, the only downside here is if our military will buy drones then it is likely that daily surveillance sorties around Boracay: spying on all those nude sunbathers and beach sex :)

Nonoy Doods, me too, I'm pro nuke energy. Modern nuke tech even use nuke wastes as fuel itself, so it becomes perpetual power.
Patrick, highly possible :-)

Josef  Noy I think the debate on drones v. jet fighters has reached such a level in the US air force, but not to the degree of sacrificing one for the other. Its always a matter of functionality, and defense experts of course recognize that there are certain things drones cant do, like intercept and outmaneuver a modern Chinese J10 fighter jet piloted by one of China's best. I dont think defense experts have ever forwarded the idea that drones can soon take over the interceptor fighter role of direct-piloted jets. They have performed quite well in surveillance and air to ground attack roles, but only in environments where the other side lacks countervailing air assets. I have never heard of a drone intercepting and engaging a fighter jet in a dog fight.

Nonoy  But I don't support using drones for real war Jo. What do we want to achieve if we really want war with China, win it? That's day dreaming. China communist govt, being a communist and totalitarian govt, wants war, war, and more war. They bully and kill their own citizens, they bully Tibet, China. We deprive them of such option. So I support using drones to have possibly 24/7 monitoring of SCS/Scarborough, take photos, lots of evidence, for prolonged legal and international debates. Shame China via international debates, never in mil confrontation.

Eugene  Ahhh governments, they are real pain in the neck. Take them away and you'll see Filipino, Chinese, Taiwanese, Vietnamese, Malaysian fishermen going to the shoal with no conflict.

CSOs and State 13: Technology, Omidyar Network and Governments

This is another example of civil society organizations (CSOs) doing their share in community development; in this case, in making governments become more transparent, more open, via technology This is posted yesterday in interaksyon.com.
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http://www.interaksyon.com/article/31763/technology-and-open-governments

Technology and open governments

13-May-12, 12:10 PM | Stephen White, special to InterAksyon.com

Technology is helping us transform our world for the better. The unpreced-ented opportunities it provides to connect with each other and with information easily and instantly is changing the way we communicate, how we do business and how we live our lives. By putting power in the hands of billions of consumers, prices have fallen and the choice and quality of goods and services have improved dramatically. Businesses, too, are gaining through the chance to know their customers better, strengthening relationships, building trust and increasing sales.

But while individuals as consumers are already reaping these benefits, as citizens they have yet to see the same improvements. Governments have often been slow to see the advantages that openness and dialogue brings for their countries. Some, to be frank, remain suspicious of the power it might hand to individuals and communities.

Slowly but surely we are seeing this change. Last year, we saw a small number of governments including the United States and the Philippines join together with citizens’ groups and businesses to promote openness and improved engagement with their citizens. The efforts of the Open Government Partnership were stepped up at a conference in Brasilia last month when 42 new countries joined. The meeting was attended by US Secretary of State Hillary Clinton and Philippines Budget Secretary Florencio B. Abad, who led discussions about how governments can use technology to improve their accountability to citizens.

The initiative is still in its early days. But by improving accountability and transparency, it has rich potential to improve public services, ensure money is spent wisely and break down the barriers between the government and the governed. At a time when this divide has never seemed bigger in many countries and when public finances are tight, these are goals of crucial importance.

Countries that sign up to the partnership have to demonstrate their commitment to open government. Each will set out this week their plans on how more information will be made available to citizens, how genuine engagement will be encouraged and how this dialogue will help drive social change.

Having seen first-hand what can be achieved if we can better connect people, I am excited by its potential to deliver positive change. The global success of eBay – the world’s on-line market place which now has over 220 million customers - was based on confidence in people and creating a network to enable them to come together. Consumers have gained from sharing their passions and interests. Many thousands of new businesses have been able to compete on a level playing field, challenging the dominance of established players.

Technology gives us, on a scale and speed never possible before, the opportunity to magnify the power of every individual. There will always be a tiny minority who might abuse this opportunity. But our experience at eBay is that the overwhelming majority use this power responsibly. We must have the confidence to harness this ability to give people a voice. If we do, the rewards will be enormous.

Governments which tap into the collective expertise and experience of their citizens will make better decisions. Increased transparency, participation and accountability will increase protection against corruption.

By using technology to empower individuals, we enable them to influence policies and priorities at a national and community level. It raises ambitions and increases interest and participation in public life.

But using the opportunities that technology brings to share information is only one half of the equation. We will only reap fully all these rewards if citizens, civil society and businesses use this information to monitor progress, hold those making decisions to account and to encourage change. Transparency is vital but so is the active engagement and participation of citizens.

It is vitally important, too, that we work at both a national and local level to help provide the skills and tools to use this data and the opportunities it brings to make a positive impact on lives and communities. This means developing the tools and partnerships which make this new era of active citizen engagement a reality. It is something Omidyar Network, which encourages the use of technology and markets to foster social change, is already supporting in many countries.

We are already seeing examples of what can be achieved and the difference it can make. In the Philippines, Omidyar Network is providing support to checkmyshool.org, a website that provides parents with independently sourced information about the quality of public schools.

But this is only the beginning. The ability to encourage honest and responsive governments and to allow citizens and communities to shape rather than just accept the services they receive holds great potential. We have seen a revolution in the way businesses and consumers interact. If we can harness the same power to improve standards of governance, we can help create jobs, strengthen societies and transform the quality of life of millions of people.

Stephen King is a partner at Omidyar Network, a philanthropic investment firm started by eBay founder Pierre Omidyar.
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See also:
CSOs and State 1: AIDS and Perversion of Welfare, June 16, 2006

CSOs and State 2: NGOs and Government Clubs, November 09, 2006

CSOs and State 3: Poverty and Public Education, February 12, 2008
CSOs and State 4: Local Government and Civil Society, August 12, 2008
CSOs and State 5: Subsidiarity, Decentralization and Privatization, September 04, 2008
CSOs and State 6: Stichting Kapatiran and Books for the Barrios, December 07, 2008
CSOs and State 7: Public School Library with Minimal Government, BftB, June 29, 2009 
CSOs and State 8: Gawad Kalinga, Health NGOs and Taxes, September 19, 2009
CSOs and State 9: The Global Fund and Corruption by Some Phil. Health NGOs, March 10, 2010
CSOs and State 10: The Role of Civil Society, June 15, 2010

CSOs and State 11: Rights and Responsibilities, Liberal Civil Society, July 11, 2010

CSOs and State 12: From NGOs to GFOs, February 26, 2012

Drug Price Control 26: Conflict of Interest in Drug Price Regulation Legislation

After posting Fat-Free Econ 9: Drug Pricing Bureaucracy is Not Cool below, a physician friend who requested anonymity gave me some leads about Cong. Ferjenel Biron, and Sen. Manny Villar. Some info why they push for more government, bigger government, drug pricing. There is possible conflict of interest among legislators who are pushing for the creation of a new bureaucracy, the Drug Price Regulation (or Regulatory) Board, DPRB.

I am not sure, I have not read, if Sen. Villar disclosed that his brother, Virgilio B. Villar, is one of the incorporators of Seville Pharmaceuticals, Inc., and was a former countrymanager of B. Braun. I have nothing against these companies as more players means more choices for consumers. I am only curious about  personal disclosure by government officials when they propose certain legislations that may benefit their kin and/or friends.

I am also not sure if Cong. Biron publicly admitted that he owns PharmaWealth and Botikang Pinoy, two  local pharma companies. Here are two stories about these two companies.
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(1) http://www.marroxas.com/press/abaya-biron-father-substandard-meds/

Abaya: Biron is 'father of substandard meds"
February 23rd, 2010

Liberal Party Secretary General and Cavite Rep. Joseph Emilio Aguinaldo Abaya today said Iloilo Rep. Ferjenel Biron deserves the title “Father of Sub-Standard Medicines” instead of being the “Father of the Cheaper Medicines Law.”


Abaya said Biron and his family owns Philippine Pharmawealth Inc. and Pharmawealth Laboratories that former Health Secretary Alberto Romualdez suspended from getting medicine supply contracts from government hospitals and agencies.


In 2000, one female patient – Prescilla Galao – died and four others were forced to undergo emergency hysterectomies to remove their uterine after taking the methylergometrine maleate in the Governor Celestino Gallares Memorial Hospital in Tagbilaran, Bohol supplied by Pharmawealth


“Wala po siyang karapatan sa titulong Father of Cheaper Medicines. Baka ‘father of substandard and deadly medicines’ pa (He has no right to the title Father of Cheaper Medicines. Maybe he can claim to be the ‘father of substandard and deadly medicines.’),” Abaya said.


“Marami nang pasyente ang namatay o napinsala nang husto dahil sa bulok na gamot na ibinebenta ng kanyang mga drug company. Hindi ko alam kung matatawag mong ‘fatherly love’ iyon (Many patients have died or have been badly injured because of substandard medicines being sold by his drug companies. I don’t know if you can call that ‘fatherly love’),” he said.


Doctors of public hospitals in Iloilo, Negros Occidental, Antique and Rizal, and regional officials of DOH and the Bureau of Food and Drug (BFAD) in Cagayan de Oro City, Davao City, and Guimaras have complained also against substandard medicines supplied by Biron and Pharmawealth such as aminophylline injections, epinephrine, hydrocortisone sodium succinate, nifedipine, metronidazole, among others.


In March 2003, the DOH through Health Undersecretary Alexander Padilla took Pharmawealth to notice as its medicines being supplied to public hospitals again failed sterility tests conducted by the BFAD.


“How can that congressman claim being the father of cheaper medicines when all he did in his business was to supply substandard medicines,” Abaya asked.


(2)  http://manuelboymejorada.wordpress.com/2011/01/13/bargain-drugs-made-in-china/

Cheap medicines, made in China
JANUARY 13, 2011

... Dr. Ferjenel Biron, M.D., an Iloilo congressman who tried hard to push a generics medicines law to benefit his pharmaceuticals business, is bringing to the country dirt-cheap medicines from China in the manner of the 168 Mall, to borrow the words of business columnist Vic Agustin (“Cocktales” in Manila Standard-Today). The 168 Mall is that super store located in Divisoria where Chinese is spoken side by side with Tagalog. This is where a shopper can hunt for cheap products from China, where you can haggle with the vendor to get the lowest price. That Vic Agustin would compare Biron’s new venture, “Botikang Pinoy,” to the 168 Mall already gives us the chills.


Biron has opened several branches of his new pharmacy chain in strategic locations near major hospitals in Manila. The stores, structured as “wholly Filipno owned”, is really a partnership with two China pharmaceutical manufacturers, Zhangjiakou Dongfang Pharmaceuticals Co. and Shanxi Nuocheng Pharmaceuticals Co. “Botikang Pinoy” is so deceptively branded to give consumers no clue that the cheap medicines they buy are actually made in China. The company’s president, Dr. Luz Suplico-Jeong, is a sister of former Vice Governor Rolex T. Suplico.


This should be a cause for worry for Filipino consumers because Biron has a track record of selling substandard drugs and medicines. In the past, his Philippine Pharmawealth was sanctioned by the Department of Health for failure to meet standards imposed by the agency on drug quality. Deaths attributed to the use of his injectables have been documented in the Eastern Visayas. Without fear of contradiction, I can say that Biron isn’t exactly a paragon for selling quality drugs. The words “fake” and “substandard” are closely associated with his product line.


It’s not for me to say that these two companies don’t meet international standards for drugs and medicines. That’s the job of the Department of Health. What I’m saying is that if it’s happened in the past, what will now protect the unsuspecting buyer of medicines from being given “fake” and “substandard” products? Biron will have to show that all the medicines sold on his shelves have been inspected and green-lighted by the Bureau of Food and Drugs (BFAD). As almost all his products are imported, government will also have to make sure the correct taxes and duties are paid. Sources tell me that Biron’s expertise is importing medicines at a cost of say, P1.00 per tablet, and then selling them at P30-50 per tablet. No sweat.


Biron made his fortune as a pioneer in importing Indian-manufactured pharmaceuticals in the middle 90s. It appears he has found a cheaper source: China. But painful lessons — the loss of lives due to his substandard medicines is certainly painful — have to be made. From what I know, the Chinese vendors on 168 Mall or the like don’t issue warranties on their products. If you find a product defective, just bring it back to them and they will replace it, no questions asked. That’s because repairing it will cost just about the same as a new unit. That’s the reason they don’t really care about quality control.


This, however, can’t be done in the case of medicines. Once ingested, there’s no way of getting it out a patient’s body, and replacing it with a full-potency drug.
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Meanwhile, I am curious how certain pharma companies close to, or being owned by, price control bureaucrats, would benefit if the proposed DPRB bill become a law. Here are two scenarios that I can think off, I do not know if this makes sense.

1. The price regulation bureaucrats will decimate if not kill those pharma companies that directly compete with their products by declaring their drug products under big price control, hoping these competing companies will exit the market. Or

2. Force these competing companies to bend their knees before the price control bureaucrats, and the companies owned or controlled by the bureaucrats will take over these competitors via full or partial acquisition.

I hope readers can help if the above scenario makes sense or not, and why.
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See also:
Fat-Free Econ 8: Drug Price Regulation is Wrong, May 04, 2012
Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012

Fat-Free Econ 9: Drug Pricing Bureaucracy is Not Cool

This is my column today in TV5's news portal. Only one photo was posted there. Additional photos here taken at the Senate hearing that day, plus charts, are not part of the original article.
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http://www.interaksyon.com/article/31666/fat-free-economics-why-drug-pricing-bureaucracy-is-not-cool

FAT-FREE ECONOMICS: Why drug pricing bureaucracy is not cool

11-May-12, 8:56 PM | Nonoy Oplas

Gun control is not so much about guns, but about government control. In the same way, drug price control is not so much about medicine prices, but about the power of bureaucrats to set prices. Guns can kill, drugs can heal, but government control can corrupt. More power to control something means more opportunity for corruption.

This became clearer to me when I attended the Congressional Oversight Committee on Quality Affordable Medicines at the Senate yesterday. It was chaired by Sen. Manny Villar and co-chaired by Rep. Albert Garcia – both of whom head the Committees on Trade and Commerce in their respective chambers.

The other legislator who attended was Rep. Ferjenel Biron (4th District, Iloilo), the main author of a bill creating the Drug Price Regulation Board (DPRB), of which a counterpart bill was filed by Sen. Villar. Besides the three, no other legislator attended the hearing. The panel of resource speakers represented various interests and groups in the Philippine healthcare sector.

What usually happens in Congress-ional committee hearings is that the legislators tend to over talk while the invited resource speakers can speak only when being called, and can be cut by legislators anytime they want.

Rep. Biron spoke long, glorifying the magic that government price regulation and control can do because “competition does not happen, drug prices here are very high compared to prices in India and Pakistan.”

He was citing old figures. India has had a drug price control policy since the mid-1970s but slaps low or zero taxes on medicines. Here, medicines are slapped with import tax, value-added tax and other levies, national and local. That partly explains the price differential between the two countries. But taxation of medicines here never figures in the explanation given by legislators.

The local generic companies, the multinational innovator companies, the local pharmacist association, medical association, drugstore association, hospital association, academic pharmacists, and some NGOs like us in Minimal Government Thinkers, are unanimous in saying that price control is not the answer as competition among various players has resulted in the slow but steady decline in average prices of drugs.

To say “millions of poor people still cannot afford many essential drugs” is wrong on two counts. One, drug prices are falling, as presented by Reiner Gloor of the Pharmaceutical and Healthcare Association of the Philippines (PHAP is mostly multinationals) and Beau Agana of the Philippine Chamber of Pharmaceutical Industry (mostly national pharmaceutical companies).

For instance, the price of anti-hypertension drug molecule amlodipine has gone down from around P40 per tablet in 2007 to P33 in 2008 before the price control policy. It further dropped to P29 when price control was imposed, before last year's P18.

The price of anti-bacterial infection co-amoxiclav has gone down from around P56 per tablet in 2007 to P50 in 2008, P41 in 2009, and P33 in 2011.

A second reason it's wrong to say that poor people cannot afford essential medicines is that for really poor people, even a P5 tablet is still “expensive and unaffordable”, since they want the government – national and local – to give away the medicines for free.

The Department of Health has identified several medicines as “entitlements,” to be given for free to certain poor patients. Some rich local governments – such as the cities of Manila, Makati and Quezon - have city-owned hospitals and they treat poor patients for free, even give away some medicines for free. This is an example of making essential drugs not just “cheap and affordable” but free for the poor, and even to those pretending to be poor.

One danger of having a new government bureaucracy that has the power to slap price control on any medicine and vaccine, especially those in the Essential Drugs List (EDL) of the DOH, is that it can be a big tool for corruption and extortion. A corrupt price control bureaucrat for instance can intimidate or harass any pharmaceutical company to pay a huge amount, otherwise their most popular, most saleable drugs will be slapped with a steep tax or voluminous paperwork, thus leading to heavy losses.

The reasons or alibi for regulating prices can be endless. “Millions of Filipinos are waiting and dying out there” is a statement for instance, that I heard at least three times from Rep. Biron during the hearing. So whether people are dying (we all die, right?) from cancer (and there are probably 200+ different types of cancer), various diseases of the heart, cerebrovascular diseases, pneumonia, diabetes, or mosquito-borne diseases (dengue, malaria, etc.), the threat of price control will be on the heads of the pharmaceutical companies.

There is too much discourse on curative healthcare, such as making various medicines cheaper. Preventive healthcare - like having healthy lifestyle (people should not over-smoke, over-drink, over-eat fatty food, over-sit) – is seldom or hardly discussed in many public discourses on healthcare.

One reason perhaps is that there is no opportunity for extortion and corruption in telling people to lead healthy lifestyles. But there is a big opportunity for extortion and corruption in various types of government intervention in curative healthcare. Like creating a price control bureaucracy, or buying tens of billions of pesos of medicines and clinic/hospital supplies for DOH and LGU hospitals.

Competition among various players, not more regulation by government agencies - whether existing or future bureaucracies - is the best tool to promote public health at the least cost to taxpayers, and invite the least opportunity for robbery among the corrupt officials in government.
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See also:
Fat-Free Econ 8: Drug Price Regulation is Wrong, May 04, 2012

Drug Price Control 23: Greece's Pharmacy Nightmares, January 13, 2011

Drug Price Control 24: Forcing Drug Firms to Report Payment to Doctors, January 24, 2012

Drug Price Control 25: Top 10 Articles on Google Search, April 03, 2012