The biggest question facing all of us right now - not to mention our children, their children and all those yet unborn - is how in the world we're going to get out from under the mountains of debt that we have piled up over the years. We owe, as a nation, somewhere in the neighborhood of $11 trillion, and that is a conservative figure. Using generally accepted accounting standards that consider our gigantic unfunded liabilities, the national debt is several times that. We can no longer count on the people of other nations to lend us money that they now know will never be repaid in other than nominal ways, i.e., with vastly cheapened dollars.
Central bankers are flooding the world with new paper currency. Even the famously frugal Swiss have increased their money supply by 30 percent in the last few months. The idea, of course, is to prevent deflation. The conceit, born out of desperation, is that Federal Reserve Chairman Ben Bernanke and his counterparts in other nations can inflate (cheapen their currencies) in a controlled manner, preventing hyperinflation (the total ruination of their currencies). My strong suspicion is that massive increases in the money supply make ruinous inflation unavoidable in the long term, though so far in the current credit meltdown, price deflation is the overwhelming reality. Oh, excepting government, that is.
Since it's difficult to believe that the federal government can actually operate with a $3.6 trillion budget and a $2 trillion deficit, we see our nervous political class entertaining something so drastic, it has been off the table in this country for many years - even though more than a hundred other governments use it to pay for their ever-growing spending. I'm talking about a value-added tax, commonly referred to as a VAT. The Washington Post reported Wednesday that tax experts at a White House meeting on budget problems "pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT."
A VAT taxes the transfer of goods and services every step of the way, from their manufacture or initiation to their final purchase. From a government's point of view, a VAT is a wonderful tax because, as the Post story reports, "producers, wholesalers and retailers are each required to record their transactions and pay a portion of the VAT." So, it's hard to dodge. It punishes spending rather than saving, which would represent a U-turn for the American economy, which has been rewarding spending and penalizing saving for many years.
Source
Monday, July 20, 2009
Monday, July 13, 2009
House panel chief: It’s a telco tax, not just a fee
SUSTAINING an earlier position of mobile-phone firms, the chairman of the House ways and means committee said on Tuesday the 5-centavo regulatory fee proposed to be imposed on industry players is a tax and not a form of a fee, virtually junking a House resolution seeking the “broad spectrum fee.”
And since this is a form of taxation, Lakas Rep. Exequiel Javier of Antique said Congress will have to pass a law and not just relegate to the National Telecommunications Commission (NTC) the task of imposing the fee, as embodied in House Resolution 282, authored by Kabalikat ng Malayang Pilipino (Kampi) Rep. Danilo Suarez of Quezon.
Javier issued his observation at Tuesday’s deliberations on Suarez’s resolution, where he compared the revenues of mobile-phone firms with the projected income that will be generated if the proposed regulatory fee were implemented.
Answering the query of Javier, Lourdes Recente of the finance department said that total income tax of telecommunications companies for 2008 is P34 billion; while the total value-added tax (VAT) is P11 billion or a total of P45 billion.
“It will be higher than the income tax. It will be higher than the VAT and you call it a fee? That’s not a fee, that’s a tax. Congress must act on it to pass a law not through NTC. That’s a too much for a fee,” Javier said.
Prior to this, Globe Telecom’s chief legal adviser Rodolfo Salalima told the panel the Suarez resolution creates an obligation to telcos to submit themselves to metering.
He said that under Article 1157 of the Civil Code, obligations “arise from law, by contracts, by quasi contracts.”
“[Therefore] I am of the position that a resolution merely expresses the intent, the sentiment of the House under [Article] 1157. With due respect, a resolution cannot create an obligation on the part of the telcos,” Salalima said.
He said that in using the fee to fund the metering and computerize all public schools nationwide as stated in the resolution, the government will in effect tax all telcos 5 centavos per text.
“This tax is uncleverly disguised as a fee. The tax, no matter what you call it, is a tax and this tax is in fact confirmed by committee report of Congressman Suarez. We need a tax law, a tax law which must originate from the House, a tax law which must also be approved by the Senate,” Salalima said.
He also informed the panel that if the metering device are outside the control of the telcos, their vulnerability to wiretapping is further enhanced. Salalima said that at present, mobile-phone firms are encountering a problem on trying to avoid wiretapping by installing a number of firewalls.
He also said that on the part of Globe, it is ready to open its books for accounting, referring to an earlier threat of Suarez.
Suarez also told Salalima not to deceive the public by claiming that the telcos are giving away free text, as even what is called free text actually has a price.
In the same hearing, Gerardo Florendo, Revenue District Officer of the Bureau of Internal Revenue (BIR), admitted that the agency cannot monitor the real income of mobile-phone firms, especially now that electronic load or “e-load” is now the “bulk of the business of the telcos” because this transaction has no receipt.
Monday, July 6, 2009
Value added tax: One trial balloon worth deflating
A trial balloon rose over the nation's capital last week when the Washington Post reported advisers within the Obama administration and members of Congress are discussing the merits of a national value-added tax to pay for health care and cover ever-expanding budget deficits.
Value-added taxes are levied on the transfer of goods and services, and are paid by the consumer. They are, essentially, a tax on every commercial transaction. As such, the final user will find the cost of any particular item will increase at least by the amount of the tax. Unlike a retail sales tax, which is charged only at the final point of sale, a VAT is collected as goods move through the production and distribution system.
Recently approved increases in government spending have pushed next year's budget deficit to more than $3 trillion, and the administration projects regularly spending $1 trillion more than it takes in over the next 10 years. At the same time, the president has promised to extend health care to millions of Americans. Proposed hikes on taxes paid by the wealthy won't come close to covering the costs.
Though once rejected as politically unpalatable, Democratic policy-makers have a new interest in a VAT. It would raise huge amounts of money off the hundreds of millions of individual commercial transactions the federal government now does tax.
Governments have legitimate and essential functions that require one or more revenue streams. So when discussed only as theory, no tax scheme is either good or bad. The problems arise in their application. Under the current circumstances, we see great opportunity for mischief if this idea becomes law.
Proponents of the VAT point out the United States is one of the few modern industrial countries that doesn't have such a tax. The VAT had its origins in France in the 1950s, and the rest of Europe has adopted it in one fashion or another. It has funded the generous social service network in those liberal democracies.
As popular as those benefits might be, the VAT is not universally loved by its beneficiaries. In Canada, the VAT is known as the Goods and Services Tax, or GST. Wags there say GST stands for "gouge and screw tax."
In most countries, the VAT has augmented, but not replaced, the income tax system. To one degree or another, the VAT combined with an income tax would allow the feds to collect not only on every dollar you make, but also on every dollar you spend - a truly comprehensive system of taxation.
Critical issues that would determine the VAT's impact on the treasury and on consumers include the tax rate and the possible exemption of some vital goods to lessen the effect on the poor. Both would be tricky issues rife with opportunities for political manipulation.
Proponents cited by the Post said a 10-14 percent VAT would raise enough money to exempt those earning less than $100,000 from the income tax. A VAT of 25 percent would allow the income tax rates of the remaining taxpayers to be reduced, but not eliminated.
Both statements are probably optimistic, if for no other reason because once Congress taps into such a rich source of funding it will find additional needs to fill and spend more and more. An initial rate of 10 percent could quickly become 15 percent, 25 percent or more. We would be surprised if many saw their income tax burden decline.
A VAT would add more than just a financial burden on those who sell products or provide services. It would make every seller a tax collector. The farmer selling hay would have to record the transaction and collect the tax for the Internal Revenue Service. We can't imagine the bureaucracy that would be required.
On its face, a VAT would hit farmers particularly hard. The already hefty cost of inputs would be increased by the cost of the tax. Farmers, who have fewer opportunities than manufacturers and retailers to increase the price of their products, would be unable to pass these additional costs on to their customers.
We think a re-evaluation of the country's finance system is probably overdue. Such a review, however, shouldn't begin with a premise that spending must be unlimited in scope and purpose. If spending could be brought under control, perhaps a VAT could be used to offset other taxes in a new, comprehensive system.
Until then, a value-added tax is too dangerous a weapon to be wielded by the current administration and Congress.
Source
Value-added taxes are levied on the transfer of goods and services, and are paid by the consumer. They are, essentially, a tax on every commercial transaction. As such, the final user will find the cost of any particular item will increase at least by the amount of the tax. Unlike a retail sales tax, which is charged only at the final point of sale, a VAT is collected as goods move through the production and distribution system.
Recently approved increases in government spending have pushed next year's budget deficit to more than $3 trillion, and the administration projects regularly spending $1 trillion more than it takes in over the next 10 years. At the same time, the president has promised to extend health care to millions of Americans. Proposed hikes on taxes paid by the wealthy won't come close to covering the costs.
Though once rejected as politically unpalatable, Democratic policy-makers have a new interest in a VAT. It would raise huge amounts of money off the hundreds of millions of individual commercial transactions the federal government now does tax.
Governments have legitimate and essential functions that require one or more revenue streams. So when discussed only as theory, no tax scheme is either good or bad. The problems arise in their application. Under the current circumstances, we see great opportunity for mischief if this idea becomes law.
Proponents of the VAT point out the United States is one of the few modern industrial countries that doesn't have such a tax. The VAT had its origins in France in the 1950s, and the rest of Europe has adopted it in one fashion or another. It has funded the generous social service network in those liberal democracies.
As popular as those benefits might be, the VAT is not universally loved by its beneficiaries. In Canada, the VAT is known as the Goods and Services Tax, or GST. Wags there say GST stands for "gouge and screw tax."
In most countries, the VAT has augmented, but not replaced, the income tax system. To one degree or another, the VAT combined with an income tax would allow the feds to collect not only on every dollar you make, but also on every dollar you spend - a truly comprehensive system of taxation.
Critical issues that would determine the VAT's impact on the treasury and on consumers include the tax rate and the possible exemption of some vital goods to lessen the effect on the poor. Both would be tricky issues rife with opportunities for political manipulation.
Proponents cited by the Post said a 10-14 percent VAT would raise enough money to exempt those earning less than $100,000 from the income tax. A VAT of 25 percent would allow the income tax rates of the remaining taxpayers to be reduced, but not eliminated.
Both statements are probably optimistic, if for no other reason because once Congress taps into such a rich source of funding it will find additional needs to fill and spend more and more. An initial rate of 10 percent could quickly become 15 percent, 25 percent or more. We would be surprised if many saw their income tax burden decline.
A VAT would add more than just a financial burden on those who sell products or provide services. It would make every seller a tax collector. The farmer selling hay would have to record the transaction and collect the tax for the Internal Revenue Service. We can't imagine the bureaucracy that would be required.
On its face, a VAT would hit farmers particularly hard. The already hefty cost of inputs would be increased by the cost of the tax. Farmers, who have fewer opportunities than manufacturers and retailers to increase the price of their products, would be unable to pass these additional costs on to their customers.
We think a re-evaluation of the country's finance system is probably overdue. Such a review, however, shouldn't begin with a premise that spending must be unlimited in scope and purpose. If spending could be brought under control, perhaps a VAT could be used to offset other taxes in a new, comprehensive system.
Until then, a value-added tax is too dangerous a weapon to be wielded by the current administration and Congress.
Source
Subscribe to:
Comments (Atom)