Editorial, Learn to live with higher taxes

Some years ago, the National Lampoon produced a comedy record that included a skit about “Prison Farm --- where Nixon’s men and the nation’s most desirable criminals are sent away for hard middle management.” At that fictional parody of a minimum security prison for the rich, one could “hear the screams of agony from the hot box: ‘Ouch! This steam is hot! I think I’ll go take a dip in the pool.”’

For the most part, we should take the protests against the Torrijos administration’s tax reform package in the same light. Few of the averments of oppression coming from the upper end of the economic scale are credible.

The fundamental reality is that we have a tax system that doesn’t raise enough money to pay for the things that our government must do.

That’s not to say that the public sector institutions don’t spend money on stupid things, or that they don’t do a lot of the things they do inefficiently. Any reasonably observant person who lives here for any length of time will know how badly our government can work at times.

It’s also easy to see things that the government ought to do but does not do because funding is in short supply. Consider, for example, how long it usually takes to repair a broken sewer main that’s bubbling raw filth onto the street. Or the paucity of public playgrounds for Panama’s kids. Or the long waits at our public health care facilities, which tend to be short on equipment, medicines and supplies. And so on....

Yes, we need more efficient government, but that still doesn’t solve the public finance problem.

There needs to be a net tax increase, and it must come from those who can afford to pay and in a form that does not defeat important public interests or result in a net loss in public revenues. A tax hike that’s too high, or that affects fragile businesses that exist on narrow margins, would just drive taxpaying businesses to close their doors or retreat into the underground economy, resulting in more unemployment, more social costs and no additional income for the government. But a tax package that gets nibbled away by special interests until it no longer raises the money that’s needed does no good at all.

The observation that tax hikes for businesses will generally be passed on to customers in the form of higher prices is valid, but not a very good argument against our government raising the money it needs. All it means is that the president’s proposal means a sacrifice by all Panamanians, not just the rich ones.

We will all be hit by the Torrijos tax increase, but it really doesn’t appear to be any sort of a knockout blow.

The cries of protest from those once-powerful persons with special economic interests who are about to lose tax breaks that they didn’t need in the first place are mostly entertaining. Some of the pseudo-scientific arguments marshaled on their behalf are truly laughable, as in an El Panama America columnist’s revival of the infamous Laffer Curve, an economic theory that led to the huge US budget deficits of the 1980s rather than the increased government revenues it predicted. The Chamber of Commerce counter-proposal --- that the increase should be borne largely by people who make less than $800 per month and are now exempt from income tax --- is a sad reflection of many things, but most of all of the size of the gulf between that group and reality.

However, some of the protests at first blush appear to be valid.

Why, for example, should we limit the tax deductions for large corporate contributions to charitable organizations? While it might be possible to find examples of abuses in the nonprofit sector, it would be better to address those specific abuses than to cut off much of the private funding for projects that frequently take up the slack when our public institutions don’t do what they ought to do.

Then there’s the historic argument, which seems to be borne out by the experience of the mid-90s, that taxing the Colon Free Zone takes away much of its competitive edge and thus tends to increase unemployment in a city that’s already economically depressed.

And while it may be wise and just to tax the incomes that Panamanian consuls make while serving in other countries, taxing foreign retirees on the pensions they receive from abroad might cost the government more than it brings in if many potential foreign retirees and the money they spend on the local economy decide to go elsewhere.

We would also do well to consider the costs of going into business in Panama, which go well beyond taxes and into various filing fees and requirements that lawyers or CPAs file many documents. Added up, these costs are much higher than the norm in the industrialized countries. It’s no big deal for large businesses, but for the little companies that collectively create the most jobs it’s a major burden, and one of the reasons why such a large percentage of our small business sector is now in the informal economy.

Protests, mostly by business interests, caused the government to back down 2 to 1.4 percent on the corporate tax on gross receipts and restore part of the tax break for large corporate charitable donations. The increased corporate filing fee will not apply to start-ups. These are minor variations on the theme that taxes are going up.

The Torrijos tax package could use a few more changes. Mostly, however, it’s just a burden that all Panamanians and foreigners who live or do business here will have to bear. We will all pay, either directly through higher taxes, indirectly through higher prices or more likely both of these things. So let’s get past this unpleasant business, make our new arrangements accordingly, and get on with our lives.

editorial

Hear the anguished cries,
but ignore most of them

Bear in mind...

editorial

Hear the anguished cries, but ignore most of them

Bear in mind...

Hear the anguished cries,
but ignore most of them