Can't we simplify tax system?

How difficult is it to have a very simple tax system that minimizes contact with a tax bureaucrat? Apparently, it is very difficult. If you ask the tax experts, it is impossible. They will insist what we have in place, where only the revenue people know all the rules, is the best of all evils.

That cannot possibly be true. Surely somewhere in this world of seven billion, there must be at least one person who has thought of or is capable of thinking of what could possibly be the most revolutionary idea for mankind: A painless tax system. Sure, it sounds like an oxymoron. It may be possible to have a peaceful and painless death but a tax system can never be painless.

I thought of painless taxation because I had just been told that the BIR has revised the tax return forms we must fill up next year to include a lot of tax census data they were prevented from asking us this year because it violated the bank secrecy law and our privacy. The detail of information being asked, including data about dividends earned from our minuscule portfolio will likely require a lot of us to hire accountants. Good for the bean counters… bad for everyone else.

The other reason I thought of painless taxation is the surprising rise from obscurity of a certain Herman Cain to the top of the list of presidential contenders in the Republican Party. I first heard of Mr. Cain from Twitter. I didn’t realize that the entrepreneur behind Grandfather’s Pizza was running for President of the United States. I thought he was just one of those noisy know-it-alls on social media.

Mr. Cain got treated as a serious candidate after he defeated Texas Gov Rick Perry in a survey in Florida. He then went on to consistently tie Republican front runner Mitt Romney. He has become a serious enough candidate to have earned a sexual harassment accusation to slow down his rise. His claim to fame is his advocacy of a kind of a simple taxation scheme he calls 9-9-9.

“Nine percent corporate business flat tax, nine percent income flat tax and a nine percent national sales tax,” he said, explaining the plan once again during last week’s Republican presidential debate. A sure sign that his campaign is surging is that during the debate other candidates spent most of their time attacking his tax plan.

An ABC News blog observes that “the first and most appealing part of Cain’s plan is that it completely scraps the current tax system. Social Security taxes would be eliminated, as well as estate taxes and capital gains taxes. Deductions and corporate loopholes would be gone too. The old system would be replaced by the nines.”

This is not the first time a flat tax scheme has been proposed during a US presidential campaign. Steve Forbes of Forbes magazine used a 17 per cent flat tax as the cornerstone of his last presidential foray when he called on the US to “scrap the mind-numbingly complex, loophole-filled, savings-averse code.” Forbes failed to get any traction but Cain is getting serious attention now.

“Relative to the current system, it is a big improvement,” William McBride, an economist with the Tax Foundation, told ABC News. “9-9-9 is fundamentally scrapping the tax code and starting over, and there is very good reason to do that.”

But, as ABC News pointed out, “a much longer list of economists say Cain’s plan would be a tax hike for the lower middle class and a tax windfall for the wealthy.” It would be so regressive it would exacerbate the already scandalous phenomenon of growing gap between the rich and the poor.

“It’s going to raise the price of just about everything by about nine percent,” said former George W. Bush economic policy adviser Bruce Bartlett. “We know from experience and analysis that that tends to hurt people with low incomes.” But supporters argue, government can just throw something like a direct cash transfer to the lower classes to compensate them from the regressive effect of the tax.

Maybe 9-9-9 is not a good idea. But the concept of a simple tax is attractive. Isn’t Hong Kong also implementing a flat no questions asked type of income taxation at higher tax rates? Even the standard optional system we used to be able to choose should be better than the current complicated system.

I googled Hong Kong’s tax system and came up with an explanation in the website of the Cato Institute. Here are some interesting highlights of the article:

“When it comes to designing a simple tax system that does the least damage to the economy, it would be difficult to find a better role model than Hong Kong. As The Economist wrote a few years ago, ‘The territory’s tradition of simple and low taxes ... is widely seen as a main reason for its stunning rise to prosperity.’

“Personal exemptions are so generous that most employees owe little or no tax on salaries. For those with high salaries, however, it is cheaper to forego personal exemptions (but not deductions) and pay a 16 percent ‘standard rate.’ Only the top two percent usually pay that standard rate, yet they account for nearly half of all revenue from the salaries tax.

“The standard rate does not make Hong Kong’s tax system simpler, but it does make it more efficient… The Hong Kong tax system has one major advantage over even the most elegant theoretical alternatives. It has been tested for more than 50 years. It works.”

I realize our bureaucrats and technocrats have a strong attachment to our complicated tax system. But maybe we should look into the systems that seem to work like Hong Kong’s. The experts in and out of government should continually try to devise a simple system that will encourage people to pay taxes and prevent corruption and tax leaks in the process.

NAIA security

Reader Dante Deang sent me this reaction to previous columns on NAIA.

With regard to the reader’s complaint about NAIA’s parking area and its scary denizens, I have to agree.

While waiting for my sister to arrive from a late night flight, it was amusing (initially, anyway) to see a ‘tag team’ of young men waiting for arriving passengers by the parking lot. It didn’t matter if the balikbayan was already being met by the entire barangay. These guys just ‘swoop’ on you from out of the dark corners of the parking area, lift your bags from the trolley and into the van, then DEMAND money.

I actually saw one guy who made the mistake of shouting at them. His car was swiped with an ice pick - from the passenger door all the way to rear fender.

There were no cops, much less airport police. And even if there were, I’d have to commiserate with them if they ever had to deal with the ‘tag teams’ who come from the immediate vicinity.

When my sister finally arrived, I had to deal with the same problem. This time there were four of them, each with his own lamentation of ‘pamasko lang po,’ ‘pantawid gutom lang po,’ etc., etc.

When one guy said “unawain nyo naman po kami,” I took my cue and replied, “kaya umuwi ang kapatid ko kasi namatayan kami. Kami ang unawain ninyo.” I guess the mention of death in the family sobers any Filipino regardless of social standing. The van managed to leave the parking lot without a scratch.

But even for a local like me, IT WAS SCARY. One can just imagine how a foreigner would feel.

Which brings up the questions:

- is the parking lot under the jurisdiction of the airport authorities, or has it been contracted/leased/what-have-you to a third party?

 - are there any provisions for security at the parking lot at all?

Offhand, I guess the parking lot has been contracted. Kasi lalabas na tanga ang airport authorities kung walang security sa parking area. After all, it is still part of the airport complex.

But then again, even a third party contractor ought to be obliged to provide ample security with all those the fees generated from parking and the food concessionaires. Heck, they could hire an entire brigade of Special Forces with all that money that comes in 24/7.

Inner peace

This one is from Rosan Cruz.

My therapist told me the way to achieve true inner peace is to finish what I start.

So far today, I have finished two bags of chips and a chocolate cake.

I feel better already.  

Boo Chanco’s e-mail address is [email protected]. He is also on Twitter @boochanco