A billion reasons to tax the super-rich
The Philippines continues to battle the COVID-19 pandemic, amid other continuing threats to a decent quality of life. The prices of rice, meat, vegetables, and other necessities are persistently on the rise, while the prices of oil and gasoline skyrocket every other week. Wage and salary rates are very slow to catch up, and new decent jobs are hard to come by, leaving many Filipinos wondering how to make ends meet in the foreseeable future.
The pandemic has also exacerbated pre-existing inequalities in the country: 26 million Filipinos now live below the poverty line. Meanwhile, the wealth of Philippine billionaires rose by as much as 30% in 2021.
In the 1950s, President Ramon Magsaysay profoundly encapsulated it in his credo, '[those] who have less in life should have more in law.'
The government plays an important role in times of crisis through its fiscal policy, both through the national budget and through its taxing powers. Unfortunately, the Marcos Jr. administration will inherit higher public debt and deficit, and a budget that is not designed to address the crisis. Former finance secretary Carlos Dominguez III expressed the urgent need to impose new taxes or raise existing ones to fund the national budget while bringing down the country’s debt.
Yet, it does not seem realistic to impose new taxes when ordinary Filipinos are reeling from the impact of the pandemic and high prices. These post-COVID-19 realities make us ask: What if we taxed the super-rich? What if the government makes this a key part of its fiscal consolidation strategy?
This is not a new idea. In the 1950s, President Ramon Magsaysay profoundly encapsulated it in his credo, “[those] who have less in life should have more in law.” However, the Philippines has never had a wealth tax. Is it not the most appropriate time to introduce wealth taxes?
Fiscal policy ought to be used as an instrument to bring about meaningful change. By taxing the rich more than the poor, the government could facilitate a more just and equitable society by bridging the wealth gap.
Last year, Makabayan bloc legislators in the House of Representatives proposed a bill that would impose a 1% tax on individuals with assets exceeding P1 billion, 2% on those with assets exceeding P2 billion, and 3% on those with assets exceeding P3 billion. The proposed bill seeks to earmark the proceeds from these taxes for various social development programs.
IBON Foundation estimated that nearly half a trillion pesos could be generated from taxing 2,919 ultra-wealthy Filipinos. If passed and implemented, wealth taxes could benefit both the government and ordinary Filipinos in three ways.
For the poor and the middle class who have historically felt the impact of taxation the most, this measure may just be more than desirable.
First, wealth taxes could narrow the post-pandemic budget deficit, which is projected to stand at P1.6 trillion next year. A lower deficit means the government will have more revenues to finance the national budget. Second, wealth taxes could also help the government sustainably manage the country’s debt in the long run. The current P13 trillion debt is expected to grow some more in the coming years. Having additional revenues will enable the government to be a little less dependent on borrowings from either domestic or foreign sources.
Nevertheless, generating new revenues and lowering debt and deficits are not ends in themselves. Fiscal policy ought to be used as an instrument to bring about meaningful change. This leads to the last point. By taxing the rich more than the poor, the government could facilitate a more just and equitable society by bridging the wealth gap. This depends greatly on how the President and his economic managers will design the budget.
Of course, wealth taxes will only truly benefit poor and middle-class Filipinos if they are properly allocated for programs responsive to their needs. The budget must be inclusive. Otherwise, wealth taxes might just end up as political largesse or, worse, lost to corruption.
Critics of the wealth tax often argue that it could drive out capital from the country. It is a self-defeating measure that is difficult to implement, Dominguez said. But for the poor and the middle class who have historically felt the impact of taxation the most, this measure may just be more than desirable.