By Satur C. Ocampo
At Ground Level | The Philippine Star
In the Philippines, tax evasion through “sophisticated accounting” by the very rich individuals and corporations explains, to a large extent, the perennially low BIR income tax collections. The wage-earners, both in the government and the private sector, shoulder the bulk of income tax payments.
The tax collection shortfalls prolong the government’s fiscal deficits, which induces continuing recourse to foreign and domestic borrowing. In turn, yearly debt servicing siphons off a large part of the national income, which otherwise should go into funding basic social services — education, health care, housing, and the like. This results in a vicious cycle that has trapped us for decades.
The same situation obtains in the United States, the world’s largest economy now mired deeply in crisis. Last year, 80 percent of government revenues came from personal income and payroll taxes. Add this negative facet of the tax system: the mega-rich get extraordinary tax breaks.
This fact is affirmed by American billionaire Warren Buffet, chair and chief executive of Berkshire Hathaway, an investment entity that owns 63 corporations. Through judicious management, Buffet’s firms evaded injurious entanglement in the 2008 US financial and economic crisis.
In an amazing essay published recently in the International Herald Tribune, related to the severe austerity program forged between President Obama and the Republican-controlled House of Representatives, Buffet bluntly reveals:
“America’s leaders have asked for ‘shared sacrifice.’ But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.
“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as ‘carried interest,’ thereby getting a bargain 15 percent tax rate…”
With a fine sense of irony, the superbillionaire tells us: “These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.”
Specifically, Buffet disclosed that the income tax he paid last year was $6,938,744, representing only 17.4 percent of his taxable income. In contrast, the other 20 people in his office were taxed 33 to 44 percent of their incomes — much, much less than his.
Buffet tracked the Internal Revenue Service data that show declining tax payments by the 400 top American earners while their incomes soared between 1992 and 2008. In 1992, he noted, the top 400 had “aggregatetaxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum,” whereas in 2008, the group’s aggregate income rose to $90.9 billion but the tax rate paid fell to 21.5 percent.
To “rearrange” America’s finances, Buffet urges raising taxes on the rich while maintaining the two percent reduction in the payroll tax contribution of employees, “who need every break they can get.”
“My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice. Billionaires like me should pay more taxes,” this wise man concludes in all seriousness. (Said like an owl?)
Predictably, other rich people railed against Buffet’s advice.
One of them, Harvey Golub, ex-boss of American Express, instead called for cuts on the US budgets for education, alternative energy sources, job training, and railroad maintenance. Golub was even quoted as having grumbled that “gifts to charity are (tax) deductible, but gifts to grandchildren are not.”
Economist Jeffrey Sachs was scandalized, saying it “shows the cocoon in which many of these [chief executive officers] live their lives.” He elaborated:
“US CEOs pull in compensation that is hundreds of times higher than their workers’… They shelter their money in endless tax loopholes, live like royalty in a country that once prided itself on being a republic… (They) all-too-frequently drive their companies and the US economy into bubbles and fraud, all the while taking their tens or hundreds of millions of dollars in compensation.”
Two other Nobel Prize economists, Paul Krugman and Joseph Stiglitz, share Sachs’ disgust towards America’s CEOs. They blame these CEOs principally for their unconscionable pursuit of profits through financial wizardry which spawned the economic bubbles that burst in the prolonged US and global crisis, billed as the “2008 Great Recession.”
The yawning wealth gap between these rich CEOs and the millions of striving workers and ordinary Americans finds an equivalent — probably much worse — situation in the Philippines.
A Forbes Asia study, based on the 2009 family income and expenditure survey, shows that the net worth of the 25 richest Filipinos amounted to $21.4 billion, or P1.021 trillion. This was roughly equivalent to the P1.029-trillion aggregate income of 11.1 million families — or 55,400,000 Filipinos.
The Aquino government’s economic team — which seems obsessed with attaining “fiscal sustainability and macroeconomic stability” — would do well to consider these highly disturbing factors in planning the development of the Philippine economy. Over 11 million families are asking: Get down to ground-level reality.
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E-mail: satur.ocampo@gmail.com
