The Philippine Star

Taxes, inequality and the election

- By BOO CHANCO

SAN FRANCISCO – Taxes, how much people pay and how much they should pay is a gut issue. In democracie­s, specially where economic inequaliti­es are significan­t, taxes should be a hot topic during an election campaign. It has always been a divisive issue here in the US and specially so during election campaign periods.

The two major candidates have tax reform ideas in their platforms. Hillary Clinton wants to raise taxes for the top one percent or those earning more than $ 732,000 a year, but leaving tax rates as is for those with lower incomes. She also wants to remove tax breaks for companies that send jobs overseas.

Donald Trump wants significan­t business tax cuts, reducing the number of income tax brackets, cutting taxes at all income levels, with the largest benefits, in dollar or percentage terms, going to the highest income households. Trump wants to remove federal income tax for individual­s earning less than $ 25,000 a year and couples earning less than $ 50,000, reduce the highest individual income tax rate from 39.6 percent to 25 percent and cut corporate taxes to no higher than 15 percent.

Trump told Bloomberg he would simplify the tax code. “I would take carried interest out, and I would let people making hundreds of millions of dollars a year pay some tax, because right now they are paying very little tax and I think it is outrageous...” He should know!

Criticized for a tax plan that largely favors the already rich, Trump belatedly called for a tax proposal that would allow parents to deduct average cost of childcare expenses. But he didn’t say in specific terms how childcare expenses will be calculated and what expenses will be eligible. This was supposedly a proposal that came from his daughter Ivanka who has taken on an advocacy for working mothers.

All very interestin­g and serious stuff, but here in the US as it is back home, taxes hardly figured as a hot topic until the New York Times carried a report on how Donald Trump managed to pay nothing in federal income taxes for almost two decades and it was all very legal. Trump managed to lose a great amount of money and he utilized a provision in the tax code that allowed him to carry over the losses through a number of years.

When asked about it in one of the debates, Trump said he was just being smart. He also said in an interview early in the campaign season that he tries to pay as little personal income tax as possible because he doesn’t approve of how tax dollars are spent.

If you are a blue collar worker who earns hourly wages and must deduct tax payment from that, you should be up in arms that a billionair­e pays little or nothing in income tax. But strangely enough, many of these workers don’t seem to mind at all. Trump refused to disclose his tax returns, a tradition for presidenti­al candidates. It’s sad voters don’t seem to care anyway.

It is simply that the rich are unlike you or me. They have an army of tax accountant­s, lawyers and lobbyists to make sure they pay little or no taxes and let the overburden­ed working class carry the load of financing government operations. Unfair doesn’t begin to describe the situation. The tax system is ripe for reforms but the one percent in society’s ruling elite will fight to keep their tax loopholes.

The tax system governing us and the US is supposed to be progressiv­e. That means, the rich folks pay or should pay more in taxes as a percentage of income. But the tax code, in the US as it is in the Philippine­s is full of loopholes that work in favor of the rich. For most of us, it is pretty much straightfo­rward. Our weekly, forthnight­ly or monthly salaries are given to us net of income tax. We work at least three months of the year for government.

In our case, we are even paying more than our just share of taxes. The tax brackets have not been updated to reflect inflation. We are also paying among the highest rates in taxes compared to our neighbors. There is no doubt we need tax reform, but I doubt if we will get any relief soon.

Finance Secretary Sonny Dominguez worked hard to deliver a tax reform measure for the considerat­ion of Congress. But it doesn’t look like our legislator­s are in any hurry to act. Some parts of the tax reform package are controvers­ial so expect change to happen in slow motion.

In the US, whoever wins the election in two weeks will also find steep opposition in legislatin­g tax reform. Their tax code is long and complicate­d and that’s how the vested interests want it. It is the same thing back home.

Clinton and Trump made some noises about tax reform during the campaign. They claim they want the tax system to be simpler, fairer and more beneficial for the economy. Right now, theirs and ours are too complicate­d and impossible for the average tax payer to figure out. The complexity works to benefit those who can afford tax consultant­s. Complexity also contribute­s to tax avoidance and inability to expand the tax base.

Indeed, the first priority should be to assure fairness in the tax rules and then simplify the tax code for improved efficiency in implementa­tion. Small and medium enterprise­s who are now daunted by the complex rules will be encouraged to move out of the untaxed undergroun­d economy.

Here in the US, large companies are able to delay or escape paying taxes by parking incomes of their subsidiari­es in tax haven countries abroad. There is an obvious urgency in reforming their tax laws to capture lost government revenues from loopholes in their tax code.

But passing such a tax reform measure in the US Congress is like pulling teeth as it is with our Congress. At least they can point to a sharply divided Congress in Washington DC for their failure to move on tax reform. We, on the other hand, have a Congress supposedly in the hands of our President. Our politician­s have no excuse.

That’s the democracy we learned from the Americans. I wonder if Duterte can include a more hardworkin­g Congress in his program to move away from American influence. That’s the kind of change that’s more welcome.

Boo Chanco’s e-mail address isbc han co@g mail. com. Follow him on Twitter@ boo chan co

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