Impose wealth tax on our billionaires
US President Joe Biden was met with thunderous applause when he revealed that he would finance the cost of his $1.8 trillion American Families Plan announced three days ago, by making sure corporate America and the wealthiest 1 percent of America would “begin to pay their fair share.”
Contrast this with our latest Philippine tax reform package which gave corporate Philippines an immediate 5 percentage-point reduction (30 percent to 25 percent) in income taxes plus other goodies, like increasing the Net Operating Loss Carry Over (Nolco) from three to five years, decreasing the minimum corporate tax from 3 percent to 1 percent, and increasing the income tax holidays, to name a few.
All this, in the time of COVID-19, when the government is facing already reduced revenue collections and increased expenditures related to the pandemic.
What is more, Reader, in a “Special Series on Tax Law Design Issues to Respond to COVID-19,” the International Monetary Fund (IMF), last April (2020), cautioned: “Refrain from introducing bespoke or knee-jerk fundamental reforms or overhauling existing tax law systems during crisis (emphases mine), so as not to compromise the integrity of the system, and risk tax certainty after the current crisis abates. In this respect, a premium should be placed on measures that move the tax system in desirable directions. Specifically: Refrain from tax holidays; keep environmental taxes; do not cut corporate income tax rates. (emphasis theirs).
The Philippine government did the exact opposite. Unbelievable.
But now, it is faced with an opportunity to do something right. By imposing a wealth tax. The IMF legal staff discussed how it could be done in their “Special Series on Tax Law Design… COVID-19” 10 days ago (April 21, 2021). As mentioned above, Biden is latching on the idea, first introduced by Senators Elizabeth Warren and Bernie Sanders.
What is a wealth tax? It is an annual tax on net wealth—so, their assets minus their liabilities (think of SALNs). Not just the income in each year.
Who would it be imposed on? Biden wants to impose it on the wealthiest 1 percent of Americans. To give you an idea: There were 128.45 million households in the United States in 2020. So it could mean that he is targeting 1.28 million households or less, depending on their net worth.
In the Philippines, we can start with not the top 1 percent, but the top 0.1 percent, or even the top 0.05 percent which, assuming 22 million households total, would give 22,000 households in the top one-tenth percent, or 11,000 households in the top one-twentieth percent.
Even if we started with the top 0.000008 percent, or to be more specific, the households of the 17 Filipino billionaires listed in Forbes Magazine’s Billionaires (Richest People in the World)—the government could go a long way to fund its expenditures, especially on the COVID-19 sufferers.
These 17 billionaires had a total net worth of US$45.6 billion or P2.2 trillion (P48.2 = US$1) in 2021, and all but one (Roberto Ongpin, whose net worth reportedly fell by 29 percent) increased their wealth from the previous year, with Lucio Tan’s wealth reportedly growing by 93 percent (from P82.5 billion to P160 billion). This, despite Tan’s Philippine Airlines in deep doodoo, and he having to cut down on employees? Which didn’t stop him from increasing his wealth by P22 billion over the period. (All these figures are being quoted from Rappler.)
Even more remarkable is what Oxfam discovered, from the same Forbes source and using 13 billionaires only (apparently, Forbes updates daily, which is why billionaires like Iñigo Zobel and Lance Gokongwei hadn’t surfaced yet). Comparing the net worths of 13 billionaires from March 2020 to November 2020, Oxfam reports that their collective wealth (except Ongpin) grew by $11.8 million or by a total of 41 percent.
This in the middle of the pandemic. When everything in the Philippines was contracting—GDP by double digits, Household Final Consumption Expenditures by something like 8 percent. The banking industry, by the way, showed positive growth all the way.
So don’t feel any pity for them. Anyway, assuming an across-the-board 1 percent tax on net worth above P5 billion, the wealth tax on 17 billionaires (in US dollars) will earn the government P20 billion. Not bad. What more from 11,000 or 22,000 families?
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