JUST last Monday I wrote about the protestation of Finance Secretary Carlos G. Dominguez III over the proposed bill to tax the country’s billionaires, which he claimed would lead to capital flight and eventually be disastrous for the economy.
But then the following day, I chanced upon a May 5, 2021 story where US President Joe Biden unveiled plans to raise corporate income taxes (from 21 to 28 percent) which elicited the usual chorus from business leaders and lawmakers against it saying it would put US businesses at a competitive disadvantage.
And during the May 1 annual shareholders’ meeting of Berkshire Hathaway, CEO Warren Buffet dismissed the overreactions and slammed those issuing dire warnings over the proposed tax changes.
“When people talk about how it all gets passed through to the customer and everything, it doesn't in most of our businesses, Buffett said adding that “only in the utility business is this the case, and it’s a special case.
” This just reinforces my long-held view that all the protestations is meant to protect the wealth of the rich to prevent them from being taxed some more.
‘Corporate fiction’
“I mean, it's just — it's a corporate fiction when they put out statements about the fact that this will be terrible for all of you people if we pay more taxes,” Buffett said.
Buffett’s statement echoes the lines of analysts like BMO’s Brian Belski, who wrote that "tax increases have been far from detrimental to US stock market performance.”
On the other hand, he added, it would hurt Berkshire shareholders if rates are higher, but that is a different situation than customers — and that may be quite appropriate. But to say otherwise is just, it doesn't make any sense,” said Buffett.
Buffett has long held measured- views on taxation and has long pointed out that he pays far less in taxes than people in his office and wrote an op-ed in the New York Times in 2011 called “Stop Coddling the Rich'' about it.
At the Berkshire Hathaway annual meeting, Buffett and his long-time business partner Charlie Munger talked about some of the latest tax issues, including the increase in people moving out of high-tax states like California and New York to lower-tax areas like Florida and Texas.
Munger, considering certain Silicon Valley people leaving California, mused that, “I frequently said I wouldn't move across the street to save my children $500 billion in taxes,” poking fun at the many wealthy people who mark their calendars noting how many days they spend in various places dictated by their unwillingness to pay more in taxes.
“But I do think it is stupid for states to drive out their wealthiest citizens — the old people that don't commit any crimes, they donate to the local charity,” Munger said.
“Who in the hell in their right mind would drive out the rich people? I mean, Florida and places like that are very shrewd, and places like California are being very stupid. It's contrary to the interest of the state.”
Rich politicians protect their wealth
Immediately, Sen. Susan Collins (R., Me.) revealed her dissent to Biden’s proposed rate of 28 percent.
“I won't support American businesses paying the highest corporate tax rate among developed countries in the world once again, and, unfortunately, that's what 28 percent would be. And that means that jobs would once again go overseas. Rep. Kevin Brady (R., Tex.) also objected to the tax hike, saying “we shouldn’t be funding infrastructure on the backs of American workers.” (Again this is a falsehood).
Passed in 2017, President Trump’s Tax Cuts and Jobs Act lowered the corporate tax rate to 21 percent from 35 percent, which was then one of the highest rates among developed economies.
Question on the fate of Buffet’s stake after his death
Another shareholder asked Buffett what happens to his Berkshire stake upon his death, as stipulated in company materials.
In the Berkshire owner’s manual, Buffett explains that none of his stock should have to be sold upon his death to cover capital gains or estate taxes, which could potentially move the stock.
Buffett essentially shrugged in his answer, pointing out that philanthropic causes and the government will get 99.7 percent of his money, and that the government really gets to decide how much they get, since they make the rules.
“Yeah, well, the tax law can be changed tomorrow,” he said. Buffett said he'd prefer that money to go to charity, but the condition of no stock sales “won’t prevail.”
Still, Buffett remains circumspect. "If they took it all, you know it would not bother me,” he said.
Munger quipped “I guarantee it won't bother you.” Everybody laughed.
Phl. situation
Last November 22, I wrote about House Bill 10253 filed by a minority bloc to tax the country’s richest and raise around P57.6 billion each year to fund medical assistance, education, employment, social protection and socialized housing.
As to be expected, the multi-millionaire finance secretary warned that the bill would result in capital flight in the long run.
As I said it takes a rich kid to know how the rich thinks.
Dominguez voiced his protestation to the measure in a letter to Speaker Lord Allan Jay Velasco saying the tax raise would lead to tax avoidance schemes and drive investments out of the country. (Compare this statement with long-time billionaire Warren Buffet and you will notice the self-preservation instinct prevailing in the rich).
“While this wealth tax could initially lead to gains in tax collections, it could, at the same time, discourage growth and investments in the long haul,” his department said in a separate statement.
House Bill No. 10253 (also known as the Super-Rich Tax Act of 2021) seeks to impose a tax of 1-3 percent on rich people.
But some congressmen believe the tax take could be P236.7 billion from just 50 of the country’s richest.
The DoF said lost investments caused by the tax would cut the country’s revenue in the long run and reduce new jobs. (Again compare this with Buffet’s statements above).
“There is a risk of capital flight if the wealth tax is passed in the Philippines,” Dominguez said.
Only four countries continue to implement the wealth tax — Belgium, Norway, Spain and Switzerland, he said.
“Many countries that had wealth taxes before ended up repealing the said measures particularly because of the increased capital mobility and access to tax havens in other countries,” he added.
Taxing over 2,000 billionaires
Think tank IBON Foundation said the measure would generate P467.1 billion from 2,919 people who have taxable assets exceeding P1 billion.
These super-rich account for 0.003% of the population and control 16 percent of the country’s wealth, it said.
This estimated revenue could fund P10,000 in emergency aid to 18.6 million poor households, subsidies for micro, small and medium enterprises to support a daily wage increase of P100 for three months and hiring additional health workers.
Pandemic response
Nongovernment organization Freedom from Debt Coalition has been pushing for a wealth tax to finance the country’s Covid-19 pandemic response.
It said candidates for the national elections should pledge that social development will take up a bigger portion of the country’s budget than debt payments.
Dominguez said the proposed tax would discourage businesses from taking on riskier ventures that could benefit the public.
They will be subject to tax liabilities on the high capital value of their assets while they generate low profits at the start of operations, he said.
“Wealth taxes fail to significantly promote economic equality or create additional fiscal space,” Dominguez said, adding that “net wealth taxes often failed to meet their redistributive goals as a result of their narrow tax bases, tax avoidance and tax evasion.”
He also expressed concerns about enforcement, citing the need to relax the Bank Secrecy Law and develop exchange of information agreements with other countries to assess wealth in the absence of a reliable database identifying the country’s richest.
My take
Going by the gospel where the poor widow gives whatever she had (two coins) to the church’s treasury compared to the huge amounts given by the rich, Jesus tells His apostles: “she has given the most. She gives without counting the cost, placing her trust in the goodness of God who raises the lowly and gives every good thing to the hungry (Lk 1:52-53).
Jesus loves a generous (giving) heart and not from the surpluses of our wealth.
Taxing such excess wealth would not even dent the good fortune that was bequeathed us by God from the talents He bestowed upon us to use.